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A stress test in a financial setting is a model of the worst circumstances that can impact and investment. In the case of a mortgage, it is determined by what would happen to your ability to afford your home depending on different financial disruptions like job loss or interest rate spiked. In the Canadian market, every mortgage that has a high-ratio or uninsured mortgage will receive a stress test. The changes in 2020 set the qualifying rate to be the 5-year average for fixed-rate mortgages. Most Canadians will be stressed at rates two percent higher than what they will receive.

Key Takeaways:

  • A mortgage stress test is a way to determine how much you can afford under many different circumstances with regards to a mortgage.
  • The way to stress test your mortgage is to increase your current interest rate and see if you would still be able to afford paying your mortgage and living a financially healthy life.
  • There are many outside sources we can use to help us with mortgages like a mortgage broker or a financial adviser to help us better manage our money.

“In finance, planning for a worst-case scenario is called a stress test. It involves modelling a bad scenario before an investment is made.”

Read more: https://www.ratehub.ca/blog/how-to-stress-test-your-mortgage/

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