Stress Test and Actual Mortgage Rates- What’s the Difference
Lately I have had a number of enquires about the difference between the stress test rate and the actual mortgage rates in Canada. So here is some information on what they are:
Stress Test Rate (also known as the Benchmark Rate)
The stress test rate is the rate you are qualifying at for your mortgage. The reason the Federal Government introduced the stress test rate was to prepare Canadians for the worst case scenario. It is a way to determine how much you can afford if you income is reduced, you loose your job, or the interest rate increases.
The mortgage stress test rate today is 4.94% (August 11, 2020). This is the rate that lenders use to qualify people for a mortgage, using a 25 year amortization. This is a federally regulated rate. The stress test rate has been as high as 5.34% and today, as mentioned above sits at 4.94%. We are expecting an announcement from the Bank of Canada on Thursday, August 13 with another reduction in the stress test rate…So stay tuned! What does a reduction mean? It means that you should be qualified for a higher mortgage amount, all other variables being the same!
Actual Mortgage Rate
The actual mortgage rate is the actual rate the lender charges. This is the rate that you pay on the mortgage and the rate that the payments are based on. This rate will change every time your mortgage is up for renewal, and this rate is based on the bond market for fixed rate mortgage and prime rate for variable rate mortgages. These rates will vary based on the lender that you choose. There are a number of different lenders including Banks, Credit Unions, Mono-line lenders, Alt-A lenders and Private Lenders, to name a few. Reach out to myself or your favourite mortgage professional to find the best solution that suits your needs!
Jeannie Stace-Smith is a Mortgage Professional with DLC Kardia Mortgage in Calgary, Alberta.