A stress test is a way of determining whether a buyer would be able to afford his or her mortgage payments, even if the conditions of the mortgage were to change. For example, if the interest rates were to be increased, or if the buyer's income were to be reduced unexpectedly, would they still be able to make their payments?
Stress tests are important because interest rates do increase from time to time, especially in times of a healthy and growing economy. Knowing that you could still afford your housing costs even in the case of an interest rate increase will help you confidently shop for your home, while avoiding stretching your budget too far.
Starting at the end of November 2016, all new homebuyers putting down less than a 20% downpayment would be subject to a stress test which involves testing their personal finances against a higher rate than obtained on their pre-approval. For example, if the bank's lowest rate was 2.5%, you may need to prove your capacity of covering payments at an interest rate of 3.0%.
Looking to buy a home in Quebec?
Apply for a Mortgage Pre-Approval here.