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Qualifying for a mortgage in 2018

By ATB Financial 29 October 2018 2 min read

Canada’s new mortgage stress test is designed to make sure consumers can afford to pay rising interest rates.


Why​ ​is​ ​a​ ​good​ ​economy​ tough on ​borrowers?


Since 2017, the Bank of Canada has raised its interest rate three times after holding the line at 0.5 per cent for two years. The increase wasn’t unexpected, but came as a shock to many Canadians, who have enjoyed uncharacteristically low rates for the last several years.

“Economic growth is great for our country and our province. It means more business, and in many cases, growth in wages,” says ATB’s Executive Vice President of Retail Financial Services John Tarnowski. “With the positive side of growth comes the potential for increased inflation and therefore the Bank of Canada will focus on balancing this with a gradual increase in interest rates.”

This is just the beginning—the economy is expected to continue to do well and interest rates are expected to continue to rise. “This poses challenges for Albertans with high levels of household debt, ”says Tarnowski. “If interest rates return to normal, Albertans carrying debt will have to put much more of their incomes toward repaying it.”

That’s why as of January 1, 2018, borrowers who apply for uninsured mortgages (those who make a downpayment of 20 per cent or more) now face a more stringent federally implemented mortgage stress test. It’s a step forward in ensuring Canadians can manage their debt.


What​ ​is​ ​a​ ​mortgage​ ​stress​ ​test?

In the past, if your contracted rate was 3.5 per cent on a $350,000 mortgage, you would be approved based on your ability to make a $1,750/month mortgage payment based on that 3.5 per cent rate. As of January 1, you qualify based on your ability to afford the Bank of Canada’s five-year benchmark rate or your contracted rate + 2 per cent, whichever is higher. So, to be approved for the same $350,000 mortgage, your lender must feel confident you can afford a $2,150/month payment, even though you’ll only be paying $1,750/month.

“One of the first questions we get from customers is, ‘Why are they doing this to us?’” says Tarnowski. “The fact is that these changes are there to protect consumers and make sure families can balance their debt obligations and their budget.”


Can​ ​you​ ​still​ ​afford​ ​the​ ​home​ ​you​ ​want?

Every conversation about a mortgage should start with a conversation about life. Are you planning on having kids? Do you have an existing car loan? Are you considering reducing your hours at work? It’s never been more important to have a mortgage with breathing room, so when interest rates do go up, you still have the finances and savings to handle whatever life throws at you—or you throw at life.

If you want to know more about the new mortgage rules and how they’ll affect you as a home buyer—or if your mortgage is up for renewal and you’re worried about rising interest rates, talk to an ATB mortgage specialist. We even have mobile mortgage specialists who will come to you. We’re listening and we’re looking out for you.​​​​​

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