If you live in Canada and you intend to apply for a mortgage loan in any of the major banks, you will be required to undergo a mortgage stress test. Since it is a legal requirement in the country, you should prepare for this if you are thinking about buying a home as it is a way to prepare against any mishaps in the future.
Frequently Asked Questions
Of Course not all mortgage lenders use the stress test. The test is mainly for those seeking a mortgage with federally regulated lenders even though there are provincially regulated lenders that also use it. There are plenty of mortgage lenders at the provincial level who don’t use the stress test. They may just charge higher interest rates than the minimum the big banks charge.
Stress tests are mandated for anyone looking to get a mortgage loan from a federally regulated lender such as the major banks in Canada. Therefore the only way to avoid a stress test is to borrow from a provincially regulated lender, such as a credit union. Your mortgage also needs to be uninsured for it to work. The downside is that you may end up paying a higher rate.
A mortgage stress test is a test conducted by a lender to determine how suitable a borrower is for a particular mortgage amount. It is basically a simulation of the worst case scenario in the borrower’s income to determine if they can pay the mortgage under suich tough circumstances. All will-be home buyers are expected to pass this test in Canada, depending on whether they are insured or uninsured.