Gilkinson Financial

The Mortgage Centre

Lic. #11952

Stress Test coming January 1, 2018

December 18, 2017


What is a Stress Test?  The current stress test in the mortgage industry is to determine if are able to afford your mortgage if interest rates were to change.  Of course it is based solely on a change in interest rate and does not take into account increase in wage, loss of job, illness, payment of other debts etc.   This type of rainy-day planning is important for a couple of reasons.   First, the Bank of Canada has begun raising rates because the economy is rebounding.  Second, home prices have been rising steadily over the last years. 

What does this mean to you?

Mortgage Agents across Ontario have been qualifying you at the stress test interest rate of 4.99% since last year.   This rate is set by the Bank of Canada and is accepted as the benchmark rate by all lenders.    The changes coming January 1st, 2018 will not change the way you qualify for a mortgage.


Currently if you were to go to any bank or lender, they would qualify you using their current rate.  i.e. as of November 30, 2017 the major banks posted interest rate for 5 year term was 4.99%.  Therefore this is the rate they would use to qualify you.   Beginning January 1st, all lenders will be required to qualify you at 4.99% the Benchmark rate or +2% whichever is higher.  This means if the banks posted rates are 4.99% you will now need to qualify at 6.99% or whatever rate they offer you plus 2%.   Let’s just say they offer you an interest rate of 3.39 percent than you would need to qualify at 5.39%.  

Starting January 1st, 2018 if you want to refinance your home you will have to qualify at the benchmark rate or plus 2% of the interest rate the lender is giving you whatever is higher.


Why does any of this mater?

Qualifying at a higher interest rate, means that the mortgage payment applied to your ratios is higher.   What this means is when you purchase or refinance a property you won’t qualify for as much.  See example below:

Mortgage Amount $400.000

If your Contracted Rate is


Qualifying Rate (3.39 +2%)


Monthly Payment



Minimum Income



The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization.

You will want to ensure if your clients are putting 20% down on the property they are purchasing that they have been pre-qualified after January 1, 2018.  The amount they were told may very well not reflect the new changes.


How can we help?


The Gilkinson Financial Team:






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