Mortgage stress test relief coming

March 2, 2020

Minister of Finance, Bill Morneau, has announced changes to the benchmark rate used to determine the minimum qualifying rate for insured mortgages, also known as the “stress test.”
These changes will come into effect April 6, 2020.
The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate posted by federally registered mortgage lenders, plus 2 per cent.
The mortgage stress test was introduced because, at the time, there were fears that mortgage rates would increase. Instead, the opposite happened. Current actual five-year mortgage rates are below 3 per cent, even though posted rates at major banks are in the 5 per cent range.
Canada now has the highest lending rates among G7 nations. The mortgage stress test could become unnecessary if lending rates come down even further, which many analysts are predicting.
“We expect sub-trend [economic] growth will continue through the early stages of 2020, testing the Bank of Canada’s patience,” according to a recent RBC Economics research paper. “We look for a rate cut in Q2, but acknowledge that persistent strength in housing and earlier fiscal stimulus could keep the bank on the sidelines.”
If the RBC forecast comes true, the Bank of Canada would be cutting its key lending rate just as the new mortgage stress test rules come into effect.