Understanding the Mortgage Stress Test in Greater Vancouver

If you’re in the market for a new home, you may have heard about the stress test. But what exactly is it? And how will it affect your ability to buy a home?

The stress test is a requirement for home buyers who are seeking an insured mortgage and have a down payment of less than 20 percent. Essentially, it means that you need to prove that you can afford a payment based on a certain minimum qualifying rate, even if interest rates rise, your income changes, or you’re faced with unforeseen expenses.

Recently, the Office of the Superintendent of Financial Institutions in Canada set this requirement at 5.25 percent, or the interest rate you negotiate with your lender plus 2 percent, whichever is higher. This means that if you’re looking to buy a home in Greater Vancouver, you’ll need to take into account the impact of the stress test on your finances.

Let’s take a look at some examples. If you’re looking to buy a Greater Vancouver apartment with a benchmark price of $770,200, you’ll need a down payment of $154,040 and a loan amount of $633,412. With a qualifying mortgage rate of 7.75 percent, your monthly principal and interest would be $4,733.62, and you’d need an income of $189,345 to qualify.

If you’re looking to buy a Greater Vancouver attached home with a benchmark price of $1,100,500, you’ll need a down payment of $220,100 and a loan amount of $880,400. With a mortgage rate of 7.75 percent, your monthly principal and interest would be $6,579.41, and you’d need an income of $263,177 to qualify.
Finally, if you’re looking to buy a Greater Vancouver detached home with a benchmark price of $2,001,400, you’ll need a down payment of $400,280 and a loan amount of $1,601,120. With a qualifying mortgage rate of 7.75 percent, your monthly principal and interest would be $11,965.51, and you’d need an income of $478,620 to qualify.

It’s important to remember that these figures are for illustration purposes only. You should work with a mortgage finance professional to determine the loan costs for any property you’re interested in. And while the stress test may seem daunting, it’s ultimately designed to help you ensure that you can afford your home over the long term, even if your circumstances change. Happy house hunting!

 

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