The dreaded stress test…or is it so dreaded?

In October 2017, the Canadian Government implemented a new stress test that requires all borrowers to qualify at the Bank of Canada’s posted 5-year mortgage rate.  This was primarily geared to people who did not have 20% down.  Jump ahead to January 2018 when the rules were updated and everyone (even those with 20% or more down) now has to work with the stress test which currently stands at 5.14%, or 2% points higher than the buyer’s contracted rate.

Renewals and the stress test

The stress test is applied to those renewing or refinancing their mortgage with a different financial institution but does not apply if you renew with your current financial institution.  Some would consider this if they were looking for new terms, lower rates or wanted to take some equity out of their property.

The best way to shop for a mortgage

Once you have an interest rate quote from your bank or mortgage lender, be sure to compare the rate and terms with other lenders to see if you can secure better terms.  Give yourself 120 days before your term is up to start investigating your option, this will ensure you avoid incurring a potential prepayment penalty.  You would not believe how many people leave this to the last minute.

You could also consider hiring a mortgage broker like Dalia Barsoum at Streetwise Mortgages, who can give you the advice and support you need to find the most favourable terms. Since mortgage brokers have a large network of lenders, they can steer you towards options you wouldn’t have known about otherwise.

There is more to your mortgage than your interest rate

There are many things to consider beyond your interest rate.  Can you afford to increase your mortgage payments? Is it best if you switch from a monthly to a bi-weekly payment? We suggest having this discussion with your mortgage broker before you sign to ensure that you are getting the terms that best suit your situation and your needs.