Real Estate

Mortgage Stress Test

  • Last Updated:
  • Sep 9th, 2021 4:47 pm
[OP]
Newbie
Aug 30, 2018
22 posts
13 upvotes

Mortgage Stress Test

Hi,

Currently, I am preparing myself to be ready to buy a townhouse/house with down payment less than 20%. I read about the stress test for rate of 5.25%.
How serious/firm the brokers/lenders are in applying this test? How would my monthly expenses calculated? Should I pay off my car loan balance ahead of time?

Thanks,
9 replies
Member
Dec 5, 2017
223 posts
173 upvotes
I would expect them to follow that rule.

Are you saying a 5.25% mortgage rate would bump your mortgage up to more than 32% of your household income (or 40% with vehicles)? I find that crazy. I'll stay with my 6% ratio.
Jr. Member
Dec 3, 2019
177 posts
90 upvotes
I think that is a Federal rule so the big 5 have to follow it.

But credit unions fall under provincial rules so I don't think they have to follow it.
Member
User avatar
Jun 28, 2018
329 posts
386 upvotes
Aurora, Ontario
Spiritwalker2222 wrote: I would expect them to follow that rule.

Are you saying a 5.25% mortgage rate would bump your mortgage up to more than 32% of your household income (or 40% with vehicles)? I find that crazy. I'll stay with my 6% ratio.
OK boomer
Deal Expert
Feb 29, 2008
15152 posts
11635 upvotes
Tarrana
buysellbuy wrote: I think that is a Federal rule so the big 5 have to follow it.

But credit unions fall under provincial rules so I don't think they have to follow it.
I believe some do follow it even though they don’t have to.
Deal Addict
Jan 15, 2017
4333 posts
3917 upvotes
Ottawa
With less than 20% down your mortgage must be insured against default and the mortgage insurance providers such as CMHC will require that the stress test be used.

Whether you should pay off any debt prior to seeking a mortgage approval depends entirely on your personal finances and the amount of mortgage that you are seeking.
Deal Addict
User avatar
Apr 12, 2013
2334 posts
1157 upvotes
Moon
buysellbuy wrote: I think that is a Federal rule so the big 5 have to follow it.

But credit unions fall under provincial rules so I don't think they have to follow it.
JayLove06 wrote: I believe some do follow it even though they don’t have to.
Under the discretion of the bank they can lend you more.
Koodo, Public Mobile, Lucky Mobile Customer
[OP]
Newbie
Aug 30, 2018
22 posts
13 upvotes
kangarooz wrote: Under the discretion of the bank they can lend you more.
Do you mean that the bank would agree to lend me more than the stress test limit?
Deal Addict
User avatar
Apr 12, 2013
2334 posts
1157 upvotes
Moon
Bee007 wrote: Do you mean that the bank would agree to lend me more than the stress test limit?
They can, the stress test has always been an optional guideline that lenders can follow. Your mortgage specialist will need to apply for an exemption on your behalf, you need to provide a compelling reason why they should put in the work to do it for you, and it has to be a good enough reason for the person approving the exemption to grant you it.

Example: if you have a full paid off 2 million dollar house and only make 20-30k, do you not think the bank will lend you more than 100-150k? I do not think so.
Koodo, Public Mobile, Lucky Mobile Customer

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