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My Mortgage Blog

Just as the Toronto housing market is gaining steam, the federal government is adjusting the stress-test rate for insured mortgages. The move is expected to make it easier for some people to purchase a home starting April 6.


But some fear it could also fuel the GTA’s already hot housing market.


Finance Minister Bill Morneau said on Tuesday the new stress-test rules will be more responsive to interest rate changes, including a recent drop in lending terms. The stress test is designed to protect consumers and banks from defaulting on their loans in the event of an interest rate hike.


“The government will continue to monitor the housing market and make changes as appropriate,” he said in a statement.


The mortgage stress test is designed to protect banks and borrowers in the event that interest rates rise enough that homeowners can no longer make their payments.


Under the new stress test, borrowers with insured loans will have to qualify at two per cent above the rate their bank is offering or two per cent above a new weekly median five-year insured mortgage rate that will be based on mortgage insurance applications. Calculates that rate would be about 4.89 per cent.


The current stress test requires borrowers to qualify at two per cent more than the rate their bank is offering or two per cent more than the Bank of Canada five-year benchmark of 5.19 per cent.