The following chart illustrates the amount of minimum household income required to purchase an average priced home in and around Canada in various markets under the new Canadian mortgage stress test rules.
What is the mortgage stress test? How does it work?
The Stress Test is a legal requirement that lenders assess whether prospective borrowers looking to buy a home, are able to withstand an increase of at least 2% in the lending rate of the Bank of Canada’s five-year benchmark rate or their contractual rate set out in the mortgage. So for example, if your lender is offering you a rate of 2.99%, they must evaluate your finances in accordance with the rules to ensure that borrowers are able to keep up with their debt and not default, up to 4.99%. This even applies to mortgage borrowers putting down a 20% deposit. If a borrower cannot pass the stress test, the borrower may need to purchase a more inexpensive home.
The stress test has been instituted as a way to help cool an overheating real estate market, which many analysts saw as an economic housing bubble.
You need a large six-figure household income to purchase the average priced home in Toronto and Vancouver
In Vancouver and Toronto you need a household income of $145,000 in Toronto and $175,000 in Vancouver to purchase a home that is priced at the average price of the home in each City. The numbers in the chart assume a 2.99% 5-year fixed mortgage rate with a 25 year amortization. These numbers also assume that the buyers have no other debts.
Mortgage Stress Test Chart – April 2018
According to Bryan Freeman, senior vice president and mortgage agent at CanWise Financial, “Every $450 of monthly [debt] obligations reduces the mortgage you can qualify for by [about] $100,000”.
For the full details of the analysis, please see the original Global News article here: Global News Article