The benchmark rate used to determine the minimum qualifying rate for insured mortgages, known as the “stress test" is changing.

Currently, a home buyer getting an insured mortgage must prove they can afford a payment based on the benchmark five-year posted rate. The Bank of Canada calculates this rate using an average of chartered banks rates, which is currently 5.19 per cent.

As of April 6, the benchmark rate will be based on the Bank of Canada's  weekly median five-year fixed insured-mortgage rate from federally-backed mortgage insurance applications adjudicated by mortgage insurers, plus two per cent.

If this rate were in effect today, it would be about 4.89 per cent, or 30 basis points, less than the current 5.19 stress-test rate.

This adjustment will allow the stress test to better represent mortgage rates offered by lenders and will be more responsive to market conditions.

At the same time, this new rate will ensure home buyers are able to afford their homes even if:

• interest rates rise;
• incomes change; or
• home buyers are faced with unforeseen expenses.

The decision to adjust the stress test follows a recent review by federal financial agencies.

The minimum qualifying rate for insured mortgages will be the higher of:

• the borrower’s contract rate, which is the mortgage interest rate agreed to by the lending institution and the borrower plus two per cent; or
• the new benchmark rate.

For the last year, the Bank of Canada's benchmark posted rate has been much higher than two per cent over contract rates and has not been responsive to mortgage market conditions.

When a borrower has less than a 20 per cent down payment, the borrower is required to obtain government-backed mortgage insurance.

Here’s what this means to the buyer of a benchmark price home in Greater Vancouver:

Impact of stress test change

*January 2020 benchmark price for a condominium in Greater Vancouver

Note: Mortgage rate shown is before and after the new changes to the B-20 Stress test come about April 6, 2020.

PTT calculated at 1% on first $200,000; 2% on remainder

Loan amount includes mortgage loan insurance fee

Impact of stress test change

*January 2020 benchmark price for a townhome in Greater Vancouver

Note: Mortgage rate shown is before and after the new changes to the B-20 Stress test come about April 6, 2020.

PTT calculated at 1% on first $200,000; 2% on remainder

Loan amount includes mortgage loan insurance fee

Impact of stress test change

*January 2020 benchmark price for a single family detached home in Greater Vancouver

Note: Mortgage rate shown is before and after the new changes to the B-20 Stress test come about April 6, 2020.

PTT calculated at 1% on first $200,000; 2% on remainder

These tables are for illustration purposes only. Buyers should work with a mortgage finance professional to ascertain the loan costs for any property. Mortgage loan insurance is only available when the purchase price is below $1,000,000.

Realtors across Canada are recommending the government should review the stress test to ensure local markets are taken in to consideration, and to remove the test from mortgage renewals.

Read more.