Changes Coming To The Mortgage Stress Test

The ‘stress test’ for mortgage qualification in Canada requires that homebuyers must qualify for a mortgage as if the mortgage interest rate were higher than the actual rate they will get. The idea is to determine that the applicant will be able to keep up with the payments if interest rates should rise.  That ‘higher rate’ is either the actual interest rate + 2% or the governments “Mortgage Qualification Rate” (MQR), whichever is greater.

Until now, the MQR has been equal to the mode of the chartered banks’ posted rates, however, as of April 6, the MQR will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. This will make the MQR more directly responsive to changes in actual mortgage rates, as the rates posted by the chartered banks are largely for show and do not closely follow the ‘real’ rates they charge to mortgage lenders.

For now, the change in the MQR only applies to insured mortgages, though it seems likely that it will be extended to uninsured mortgages as well.

This is a pretty small tweak to the stress test, and won’t make a significant difference to how much a lender can qualify for. The biggest impact will be on responsiveness – the new MQR will change on a weekly basis as mortgage rates change, not just whenever the banks decide to change their posted rates.