Mortgage Tips: What is a stress test?

A mortgage stress test is an assessment implemented by banks/financial institutions to ensure people can afford their mortgage payments even if interest rates rise in the future.

 

The stress test requires mortgage applicants to qualify for a mortgage at a higher interest rate than they one they will actually be paying, typically 2% higher. 

 

For example:

Contract rate = rate an applicant actually gets (i.e. 5% with $2,000/monthly payment)

Stress test rate = Rate an applicant must qualify at (7% with $2,400/monthly payment)