In 2018, the mortgage stress test was introduced to Canadian’s, and since its inception, the test has caused some difficulty for new and existing homeowners.
If you’re in need of a first or second mortgage, or even a home equity loan, you’ve come to the right place! To clarify any questions you may have about the mortgage stress test, the Leap Financial team has compiled some of the most important advice to relieve you of any stress that loan applications may be causing you.
What Exactly Is A Mortgage Stress Test?
Since 2018, the mortgage stress test has consisted of a fixed set of rules that banks abide by for any situation in which you apply for:
- A home equity loan or home equity line of credit (HELOC)
- A new mortgage
The stress test provides banks with a “mortgage qualifier tool,” which allows them to determine the maximum amount that you can borrow.
But you may be wondering, “why does the mortgage stress test worry so many homeowners?”
Well, the mortgage stress test forces Canadian borrowers to have to qualify at high interest rates; rates higher than what they would actually be paying if their loan were to receive approval. Are you able to see the worries the test may cause yet?
How Does The Stress Test Affect Homeowners?
When you apply, your mortgage loan application is processed and thoroughly examined by the bank. This financial information is processed through the lens of the mortgage stress test which typically includes:
- Your total debt
- Your current credit score
- Your income, compared to your current housing expenses
In addition to assessing this information, the banks are also required to use a “qualifying interest rate.” The rate is used to determine your loan eligibility and can vary relative to the type of homeowner loan that you are seeking to apply for.
Are You A New Homeowner?
If you are brand new to the world of homeowners and are looking for your very first mortgage and if you have mortgage loan insurance, you’ll have to quality at whichever interest rate is higher at:
- The Bank of Canada’s conventional 5 year mortgage rate
- Your banking institutions rate
However, your situation may be different from others. If you can’t get, or don’t have, mortgage loan insurance, you’ll be obligated to qualify at the higher of your bank’s rate + 2%, or the Bank of Canada’s rate
Are You Already A Homeowner?
If you’re already an existing homeowner, but you’re currently looking to apply for:
- A home equity loan
- A home equity line of credit (HELOC)
- A second mortgage loan
Then the qualifying interest rates will be the same as new homeowners. However, if you are a HELOC applicant, you must qualify across the board at the higher of their bank’s rate +2%, or the Bank of Canada’s rate.
But there is a silver lining!
If you are a homeowner in need of a loan with a quick and simple application process without having to worry about the difficulties of the mortgage stress test, then Leap Financial is the ideal private lender for you.
Applying for a mortgage or home equity loan with Leap Financial means that your approval is determined by the value of your home equity, and not your existing credit score or income. Best of all, there’s no need to worry about a mortgage stress test!
Whether you’re in dire need of capital, or are simply just a homeowner looking for equity to finance a project, Leap Financial is here for you. Take your first steps towards your financial dreams today, and fill out our cost-free zero-obligation form to find out how much you qualify for!