Ottawa To Ease Mortgage Stress Test Starting On April 6

The federal government is moving to relax the "stress test" that financial institutions are required to perform on insured mortgages beginning on April 6.

The easing of the mortgage stress test is designed to make it easier for people to purchase their first home, as well as for homeowners to refinance existing mortgages.

Under the revised rules, the new minimum qualifying rate for a mortgage will be the greater of the borrower's contract rate, or the weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus two percentage points.

The current stress test rate is the greater of the borrower's contract rate or the Bank of Canada five-year benchmark posted mortgage rate, which is based on the posted rates at the country’s six largest banks.

Finance Minister Bill Morneau unveiled the change and noted that the stress test will rise and fall if there are changes in the median interest rates lenders are providing, while continuing to ensure people only take on mortgages they can afford.

The federal government required the stress test apply to all insured mortgages in 2016.

Canadian household debt has been near record levels over the past five years, fueled in large part by mortgages. The stress test is used to ensure that Canadians can afford their mortgage payments if interest rates rise in the future.

However, consumer advocates had complained that the mortgage stress test was too stringent and keeping many Canadians out of the housing market. The Bank of Canada five-year benchmark posted mortgage rate is currently 5.19%.