Stress Testing Your Mortgage – Tips From Your Mortgage Broker in Ontario
By : Mits Kantaria
In finance, there’s always a worst-case scenario. Preparing for an unexpected but potential outcome is important whether you’re looking at personal loans, your income and employment situation, or even your mortgage, with a mortgage broker in Ontario. The process is known as stress testing. In Canada, it’s a legal requirement to stress test a mortgage.
With the most experienced mortgage broker in Ontario, stress testing a mortgage is simple and can deliver important insights. Let’s find out what this means for homebuyers seeking the best mortgage rates in Ontario.
Your Mortgage Broker in Ontario can Facilitate a Mortgage Stress Test
A mortgage stress test is simply a process of determining how much you can afford while considering some potential circumstances.
Life hurdles can interfere with your ability to pay a mortgage, even if you have the best mortgage rates in Ontario. If you lost your job, saw a reduction in your income, or if you had a child, how would this affect your ability to repay your mortgage? If rates change ahead of your mortgage renewal, how would this impact your financial situation?
These questions, and more, are considered in a stress test with your mortgage broker in Ontario.
Do You Need a Stress Test to Get the Best Mortgage Rates in Ontario?
To get the best mortgage rates in Ontario you’ll need to make a down payment of at least 20%, and you should have a low debt ratio with enough income to support your mortgage. A stress test can inform you how much you could afford in certain scenarios. It’s also a legal requirement.
Stress tests were previously required only for high-ratio mortgages with down payments below 20%. Today, they’re required for every mortgage.
When you apply for a mortgage with a bank, money lender, or through your mortgage broker in Ontario, you’ll receive offers with a contracted rate. Working with a broker will give you access to some of the best rates in Ontario.
The lender will look at your finances and a variety of scenarios to ensure that you can afford to pay back your mortgage.
An Example of a Mortgage Stress Test with a Money Lender
A money lender like a bank, mortgage firm, or unconventional money lender, will look at two rates when running a stress test.
- The contracted rate.
- The qualifying rate.
The contracted rate is based on the best mortgage rates in Ontario that the lender will offer you.
The qualifying rate is set by the Bank of Canada. You can think of the qualifying rate as a high end rate that you might get in the worst-case scenario. For example, if it’s time for mortgage renewal and rates have increased, then the new rate could be closer to the qualifying rate used at the time of your stress test.
The lender will determine if you can afford to pay the contracted rate today. They will also determine if you can afford to pay the qualifying rate.
The purpose of this is to ensure that even in the worst-case scenario with a significant change in the best mortgage rates in Ontario, you would still be able to make repayments.
What Happens if Rates Increase Before Your Next Mortgage Renewal?
If you sign for a fixed mortgage, you’ll need to go through the process of mortgage renewal at the end of the term. Your mortgage broker in Ontario can help with this and will find you the best mortgage rates in Ontario.
If the rate has significantly increased, then you’ll sign a mortgage renewal with a new rate higher than before. Because of the stress test process, you should still be able to afford repayments at a higher rate.
As long as the stress test is thorough and compliant with Canadian law, any changes in the market will remain affordable, based on your initial stress test. If you sign for a variable mortgage, then the stress test is particularly important because rates will fluctuate throughout the term.
The qualifying rate is currently calculated based on the average rate of the five biggest banks in Canada. Qualifying rates don’t take private money lender rates into account. This system is set to change in the coming years. The Bank of Canada will move to a model where the qualifying rate is based on the median 5-Year fixed rate.
Make the Mortgage Process Easy with a Trusted Canadian Broker
Mortgage Capital Investment provides mortgage broker services in Ontario. We can connect you with banks, private money lenders, and other lending institutions through an extensive network that we maintain. We’ll make sure that you have all of the right information to make a sound financial decision. You’ll get help with documentation for mortgage applications and the stress test process.
When you work with a mortgage broker in Ontario, you only need to submit documentation once. Your broker will engage with the market for you to find the best interest rates in Ontario.
Lowest Residential Mortgage Rates in Canada*
|TD Bank Rate
|3 Year Fixed/ 25 yrs
|4 Year Fixed/25 yrs
|5 Year Fixed/ 25 yrs
|5 Year Variable/ 25 yrs
|5 Year Fixed/ 30 yrs
|5 Year Variable/30 yr
|3 Year Fixed/30yr
|**NEW RENTAL 5 Year Fixed /30yr
Updated: Feb 20 , 2024
* Current promotion rates may provide an additional 0.05% discount or may be anytime discontinued at the Lender discretion.Some condition may apply.Rates may vary between geographic regions and the posted rates on this website may not be available in your area.TD Bank rate used for comparable are the rate listed in the Broker Chanel Portal by TD Canada Bank at the date above. Please contact our MCI office for more details and current promotions.
LOWEST REGULAR RATES IN CANADA* * Current promotion rates may provide an additional 0.10% discount. Rates may vary between geographic regions and the posted rates on this website may not be available in your area. Please contact our MCI office for more details and current promotions.