If you want the best rate, you’ll need to pass a stress test to qualify for a mortgage with a prime lender. You must prove you can afford payments at a qualifying interest rate typically higher than the actual rate in your mortgage contract.
You must pass this stress test to determine whether you require mortgage default insurance. Provincially regulated credit unions are not required to qualify all mortgages on the stress test; however, they will use a higher interest rate as they will not have access to prime lending rates on those mortgage solutions.
Federally regulated lenders such as mortgage finance companies and banks must use the higher interest rate of either:
5.25%
the contracted interest rate plus 2%
On variable rate mortgages, both VRM and ARM, the rate you lock in during a pre-approval can change with the lender’s prime rate change. Indeed, the variable mortgage rate hold is a discount, which is being held from the lender’s prime rate, which fluctuates with the BoC’s Key Overnight Policy Rate.
If you already have a mortgage, you’ll need to pass this stress test if you:
refinance (refi) your home for equity take out (ETO)
renew by transferring or switching to a new lender, or
take out a home equity line of credit