Ratebuzz
Why the minimum qualifying rate for uninsured mortgages is important
A mortgage stress test is essential to ensure borrowers can still make payments if they experience negative financial shocks. These might include:
- A reduction in income
- An increase in mortgage interest rates
- An increase in household expenses
One of the biggest risks for financial institutions is mortgages. If borrowers can’t repay their loans, it could have a negative impact on Canada’s financial system. By qualifying borrowers at a higher interest rate than the actual rate they’ve agreed to with their lender, we’re ensuring lenders remain careful with their lending practices.
The buffer and the floor
There are two components to the minimum qualifying rate for uninsured mortgages:
- The buffer: Currently set at 2%, this is a safety margin that shows that borrowers can absorb some negative impacts to their finances
- The floor: Currently set at 5.25%, this number accounts for risks that can emerge from changes in the broader economy
