Taking out a mortgage in Canada has become more difficult

Taking out a mortgage in Canada has become more difficult

The government has tightened the criteria for those who qualify for a mortgage loan.

On June 1, Canada raised the level of the so-called "stress test" on mortgages. Now it has become a little more difficult to qualify for a loan. Such a move is expected to cool the real estate market.

The new stress test level is either 5.25% per annum or two full points above the borrower's mortgage rate — the higher value is chosen. The stress test level has increased by almost half a point compared to the previous value.

The stress test is a requirement on the borrower's finances. It has no effect on the mortgage itself, but it serves as a test of whether the lender will be able to pay the mortgage in the event of a rate increase.

It is now possible to take out a mortgage with a rate in the region of 2%. If a person takes out a $300,000 CAD mortgage for 25 years, the monthly payment will be $1,270 CAD. However, given the stress test, the borrower must have enough income to pay 5.25%, which is $1,788 per month. Even though this amount is hypothetical, the person must have the means to pay it, otherwise they will not be able to take the mortgage.

The stress test was first introduced in Canada in 2017. Mortgage rates were at record lows in 2020-2021, triggering strong demand and a surge in property prices across the country.

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