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If you’re looking to buy a home now, you will now need to prove you can make payments based on a minimum rate of 5.25% starting today when dealing with a federally regulated financial institution. This is not the actual interest rate your mortgage will be set at, this is what they use to protect you in case rates increase in the future. We are still offering low rates (1.99-2.64%) this is just what we use in the background for qualification purposes. 

Whether you’re making a down payment of less than 20% or more than 20%, you’ll now be qualified based on your contract rate plus 2%, or 5.25%, whichever is higher. That’s up from the previous qualifying rate of 4.79%. You will see below examples of how much this actually impacts.

The changes were announced by the Office of the Superintendent of Financial Institutions and the Department of Finance last week. The increase is expected to reduce purchasing power by approximately 4-5%.

Here are a couple of examples of how the new stress test will affect buyers based on home values:

Before June 1, 2021


After June 1, 2021


*Note these are estimates only based on a 5-year fixed term, 25-year amortization and doesn’t include expenses such as heat, taxes, insurance and condo fees.

The increased minimum qualifying rate isn’t likely to shut would-be buyers out of the market since it’s not actually increasing costs, noted BMO chief economist Douglas Porter.

“It just throws up some potential limits on what they can borrow — if they were already borrowing up to the limit,” he told the Financial Post.

Porter added that because the new policy affects all borrowers, it has the potential to rein in prices somewhat since all homebuyers are now faced with reduced purchasing power. As we can see here on Prince Edward Island, home prices, not just in major cities but all over, has grown substantially and homes are still selling within hours of being posted. By doing this they are hoping this will control that aspect of the housing market.

“Think about it this way: If Ottawa gave every renter in the country a $10,000 gift card that could only be used to buy a new home, the only winner from that would be home sellers, not the buyers, because every home price in the country would immediately go up $10,000,” he said.

Bank of Canada Governor Tiff Macklem welcomed the changes to the insured and uninsured mortgage stress tests, noting recently that homebuyers are still enjoying “unusually low” mortgage rates.

“Borrowers and lenders both have roles in ensuring that households can still afford to service their debt at higher rates,” he said.

Grandfathering Rules

For homebuyers who already had a binding pre-approval prior to June 1, some lenders and mortgage insurers have said they will be qualified under the previous stress test rate, for both insured and uninsured loans.

This also applies to those with a signed offer to purchase dated prior to June 1.

Don't let these changes scare you from still looking into buying a home. This will impact a lot of people but if you go into buying a home with a set limit you are not willing to go over, sometimes these changes won't even impact your borrowing power. It's hard for someone with no mortgage experience to grasp how this truly affects them and can sometimes scare them into not trying anymore but depending on your situation this might not even impact you at all. Let's discuss so you get a full understanding on how this will impact you or if it even will.