As you may have heard, Canada's Finance Minister Bill Morneau unveiled a series of changes to the rules used to underwrite insured mortgages. Included in those changes, effective October 2016, was one termed a mortgage "stress test."
The stress test is applicable to insured mortgage applications. It's designed to ensure that borrowers are capable of paying their loans in the event interest rates rise, or their personal financial situation worsens. So now, no matter how low their actual mortgage rate, Canadian borrowers must show that they qualify for the Bank of Canada's Mortgage Qualifying Rate, which, for example, was 4.64 percent when the new rule came into effect — about twice what a borrower might actually be paying.
Prior to the new changes, the historically low mortgage rates allowed even first-time homebuyers with a modest income to qualify for a large loan. Now, buyers who previously qualified for a higher-priced home may experience a reduction in affordability.
If you're considering a move, you'll want to clarify if or how the new mortgage restrictions might apply to you, and if they do, what your best course of action is in today's everchanging real estate environment.