The 'NEW' Mortgage Rules.. What does the new Stress Test Mean to you

Mortgage advisors have historically a built "Mortgage Plans" around every borrowers "personal stress test" rather than by how much a lender simply wants to lend the clients. 


How much the lender will lend a borrower may not always be a reflection of what you as a client's budget can truly manage. It is very important to understand a borrowers personal financial ambition, expectations and goals first before determining the appropriate budget or cash flow that resonates with them and their families. 

Now the federal mortgage regulators are chiming in as well and are setting a new minimum qualifying interest rate for uninsured mortgages. This effectively means that any mortgage at 80% of the properties value or less, will now be subject to a new stress test. This new federal requirement is a personal budget hedge in the event that mortgage rates were to rise by about 2%, which we personally feel is highly unlikely. (If they did increase that dramatically, we would have much bigger economic challenges to deal with as compared to simply making monthly mortgage payments.)


Despite the fact you may have 20% down, lenders will now have to calculate your mortgage payment as if your interest rate was at approximately 5%, (even though today's actual 5 year fixed mortgage rate can be as low as 2.99%). Similar rules were already introduced in October 2016 for all buyers who did not have 20%. Simply put that now means that there are no longer any mortgage underwriting advantages for buyers with a 20% down payment.

Now moving forward, when applying for a mortgage, assets or cash wealth/equity really mean nothing. One must clearly demonstrate they can manage all of their monthly obligations should interest rates rise by about 2%, regardless of how large their down payment may be - no exceptions.

We have estimated that in Edmonton these new rules will affect 1-in-6 home buyers. For example, if someone previously qualified for an $800,000 mortgage they would now only qualify for a $675,000 mortgage. Again, as your personal mortgage advisor, our top priority is that our borrowers are 100% comfortable with their own "personal stress test" despite any federal mortgage rules. Today's personal stress tool is to rely on that for every $10,000 borrowed the result is $45/month in a mortgage payment. This simple formula will save you from having to run to a mortgage calculator all the time. For example, here is an example of the "easy math" - if you were planning on borrowing $500,000, you could expect your mortgage payment to be $2,250/month.

Please remember that a lender is the mortgage supplier and not necessarily a neutral advisor. In generally, they want to lend out as much money as possible rather than to addressing your "personal stress test".