Mortgage Stress Test:
What You Need to Know

Applying and qualifying for a mortgage can seem like a challenging or difficult thing but there are ways to help guide you through this. That’s where a mortgage stress test comes in, it will assist in determining your mortgage qualifications based on your financial standing.

What is a mortgage stress test?

A mortgage stress test is a set of rules that every new homeowner must go through, they exist to help protect you, the borrower. The test is in place to ensure you will be able to continue making your mortgage payments if interest rates rise in the future. 

What are the mortgage rules?

The rules basically mean you must pass a test. Now don’t worry, you won’t need pen and paper, it’s not that kind of test. It simply means that you need to qualify for your mortgage using the “minimum qualifying rate.” This rate is determined by your Advisor adding 2% to the contract rate or 5.25%, which ever is higher. Using the Mortgage Calculator, enter all your details and apply the higher fixed rate of 5.25% or the posted rate plus 2% (which ever is higher).

How is the minimum qualifying rate calculated?

Let’s say your Advisor offers you our 5-year Mortgage special rate of 2.44%, you’ll have to use the 5.25% qualifying rate to pass your stress test. Similarly, if the rate offered was, 3.54%, you’ll have to qualify using the rate of 5.54%. Let’s assume your household income is $80,000 and you have a down payment of $24,000. You might be able to afford a $320,000 house at the rate of 2.44% and the previous qualifying rate of 4.79%. But with the new qualifying rate of 5.25% and the same mortgage rate, the maximum home price is now reduced to approximately $308,000 (roughly 3.75% lower). In order to afford the same home as before under the new stress test rules, you would need to add roughly $12,000 to your down payment.

To get started with your mortgage journey, contact an Advisor today

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