Stressed out about Canada’s mortgage stress test? Mortgage-comparison website RateSpy recently rounded up four “loopholes” for homebuyers trying to qualify under the tougher rules.
The rules, introduced in January 2018, require uninsured mortgage borrowers — so those who can put forward a downpayment of at least 20 percent — to qualify at a rate that is either 200 basis points above their contract or the Bank of Canada five-year benchmark, whichever is higher. Similar testing has been used to qualify insured mortgage borrowers since 2016.
1. Switch from fixed
One potential “workaround” RateSpy tipped readers off about had to do with the typical spread between variable and fixed rates. Normally — but not always — posted variable rates will be meaningfully lower than their fixed counterparts (otherwise how would banks entice borrowers to go with the option where rates can fluctuate?).
RateSpy notes that, back in January, banks were offering uninsured variable rates of 3.04 percent, compared to 3.69 percent for five-year fixed rates. “People choosing rates were stress tested at 5.34%, a 35-bps (basis points) easier stress test than the 5-year fixed at the time,” the blog post reads.
2. Consider credit unions
Because in the majority provinces, credit unions are provincially regulated, the newer federal stress test doesn’t apply. An exception is Quebec. Your ability to pay down your debt will still be tested, but not at the higher rate. “In most provinces you can find a credit union willing to stress test you on its discounted 5-year fixed rate (e.g., 3.19% instead of a tougher 5.19%),” reads the RateSpy post.
3. Or consider a more lax lender
“Some banks allow more debt-ratio flexibility than others,” notes RateSpy. “For example, whereas most prime lenders have a hard 44% limit on total debt service ratio, some banks will allow up to 50% if the borrower is well qualified and has enough equity,” the blog post continues.
4. Or a non-prime one
Robert McLister, RateSpy’s founder, says that non-prime lenders that are federally regulated, such as Home Trust or Community Trust, are also options.
“Compared to a major bank, they have more lenient ratio limits,” he tells Livabl. “The stress test still applies, but total debt-service limits are higher,” McLister explains.