Bank of Canada’s mortgage ‘stress test’ lending rate climbs higher


Obtaining a mortgage is getting more expensive for some Canadians as a rate used for borrower stress testing moved higher on Wednesday.

The benchmark interest rate used by the Bank of Canada for mortgage stress testing went up by 20 percentage points to 5.34 per cent from 5.14 per cent, where it had been since mid-January of this year.

The rate used has now gone up five times since last May, when it stood at 4.64 per cent.

The central bank’s rate is based on a survey of conventional five-year rates available at the big banks.

Under new rules that came in force in Jan. 1, all home buyers with high-ratio mortgages — those with a down payment of less than 20 per cent of the price of the home — or an uninsured mortgage — those with a down payment of at least 20 per cent — have to go through the mortgage stress test.

The test is based on qualifying for the greater of either the Bank of Canada qualifying rate or the buyer’s contracted interest rate plus two percentage points.

“The idea behind [the test] is to make sure you can afford your mortgage at a time when interest rates are going up,” Cynthia Holmes, an associate professor and chair of the real estate management department at the Ted Rogers School of Management at Ryerson University, told CBC News in a recent interview.

“They want to make sure you can afford your mortgage with a good solid rate in place, not that you can only afford it if rates are really really low,” Holmes said.

Last week, several of the Big Banks boosted their posted mortgage rates.


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