Perform Your Own Stress Test – Mortgage 2018

Perform Your Own Stress Test – Mortgage 2018 1024 480 Guardian Financing

Are you ready to opt for a mortgage? Or are you a homeowner looking forward to renewing their mortgage or upgrading your home to something bigger and better than what you have at the moment? Well, don’t just think it will be smooth sailing. The year is 2018, and the mortgage rules in Canada just changed, with the major one being the introduction of the mortgage stress test.

About the stress test

Before delving into the specifics of the test, here is how it came about: recent studies showed that the average level of household debt in Canada has been on the rise in the last few years. With the increase in the interest rates across the country, most Canadians buying homes would not be able to afford those homes in the years to come if the gradual rise in interest rate were to continue.

The stress test is thus put in place to evaluate the borrower’s financial ability to meet their mortgage repayment obligations in the face of the rising interest rates, and should they run into any financial turmoil such as loss of employment. In essence, the test forces borrowers to face the reality of the high cost of being a homeowner.

How to perform your own stress test

Before you weigh your income against the current rates in your area, which might favor you at the moment, assume that the rates in the future may not be favorable at all. This is especially relevant if you are thinking about a variable rate mortgage. Since variable rates are based on the prime rate, if this happens to be your mortgage type, then you will be affected by a general rise in interest rates.

Homeowners with fixed rates will continue with the low rates, but this will change when the mortgage is up for renewal. So to be on the safe side, assume an increase in interest rates of around 1-2% over the coming years, and determine whether you will still be able to meet your mortgage repayment obligations at such higher rates.