If your mortgage renewal is approaching in 2025, you might be feeling uneasy about rising interest rates and their impact on your monthly payments. Many homeowners secured mortgages at historically low rates during the pandemic—now, as renewals take place in a different financial climate, borrowers must prepare for higher costs. But don’t worry, strategic planning can help you navigate these changes with confidence.

Why Are Mortgage Payments Increasing?

Interest rates were at record lows throughout the pandemic, making homeownership more affordable for many Canadians. Now, with rates significantly higher than before, renewing homeowners are seeing an increase in their monthly payments. The Bank of Canada estimates that 60% of mortgages will renew in 2025 and 2026, meaning a large number of borrowers will need to rethink their financial strategy.

How Higher Rates Affect Homeowners

A jump in mortgage payments can strain your budget, but there are proactive steps you can take to mitigate financial stress and secure manageable payment terms.

What You Can Do to Prepare

✅ Assess Your Financial Position: Review your income, expenses, and any discretionary spending to identify cost-cutting opportunities. 

 ✅ Explore Refinancing Options: Extending your amortization period or refinancing to a more flexible mortgage can ease your monthly payment burden. 

 ✅ Lock In Your Rate Early: If your renewal is nearing, consider locking in a favorable rate before further increases occur. 

 ✅ Consult a Mortgage Expert: Speaking with a professional can help you uncover personalized solutions, from debt consolidation to mortgage restructuring.

Frequently Asked Questions

💡 How much will my monthly payments increase? The exact amount depends on your original mortgage rate, your new rate upon renewal, and your remaining balance. If you secured a mortgage at 2-3%, expect potential renewal rates between 4-6%, leading to a significant monthly payment increase.

💡 Should I switch from a variable-rate to a fixed-rate mortgage? This decision depends on your comfort level with risk. Fixed rates provide stability in uncertain economic times, while variable rates historically offer savings over the long term. Consulting a mortgage expert can help you weigh the pros and cons.

💡 Is refinancing worth considering? Refinancing may lower your payments or consolidate debt, but extending your mortgage term means paying more interest over time. Weigh the short-term benefits against the long-term costs with professional guidance.

Let’s Plan Your Renewal Together

Mortgage renewals don’t have to feel overwhelming. By reviewing your financial situation early, exploring refinancing possibilities, and seeking expert advice, you can ensure a smooth renewal process.

Ready to discuss your mortgage options? Reach out to us today to create a strategy that keeps your payments manageable while securing your financial future.

High-interest debt from credit cards or loans can make it hard to efficiently manage your finances and can lead to falling behind on payments; even minimum payments can be tough to make when debt gets out of control. If you have the equity available in your home, a debt consolidation mortgage may be able to help.

A debt consolidation mortgage is a type of refinance that combines 2 or more liabilities into one mortgage or a home equity line of credit, or HELOC. The reason that this could be a great option to help pay down debt is that once all the liabilities are paid off, you are left with one payment rather than multiple payments. It can be easier to manage the one payment than cover a bunch of payments that seem to keep growing over time.

Another benefit of using a debt consolidation mortgage is that the interest rate will likely be much less than the rate being charged on credit cards and loans. It is common to see credit card interest rates above 20% versus a mortgage or HELOC rate that will likely be considerably less. The lower interest rate will assist in being able to get ahead of your debt since less of your monthly payments will be going to pay interest, and seeing balances grow month by month may be eliminated.

It is important to mention that before entering into a debt consolidation mortgage, a budget should be prepared to ensure that the debt consolidation mortgage will put you into a better position. Even though this is usually the case, a calculated and detailed budget can provide evidence of the better position. While going through the budget and liabilities, it is also important to review interest rates on existing liabilities to ensure that they are not less than the planned mortgage or HELOC rate. Unless the lender required it, there wouldn't be much sense in paying of a low interest car loan with a mortgage that may feature a higher rate.

While reviewing the budget and mortgage options, it is also important to consider if the debt consolidation mortgage should be used for any existing mortgages on your property, or if it is better to leave the existing mortgage in place and use a HELOC or second mortgage to consolidate the debt. Much like using a debt consolidation mortgage to pay out a low interest car loan, it likely wouldn't make sense to pay out a mortgage with a low rate, or incur a large penalty to break the current mortgage. The potential higher rate on the mortgage or penalties may erase any potential savings from the debt consolidation.

Since debt consolidation scenarios can be wide-ranging and there are many moving parts to them, especially when loans and mortgages are involved, I will focus my example on consolidating credit card debts and a personal line of credit into a home equity line of credit. This basic example will show the cash flow and interest savings that can be found by moving multiple high interest debts into one liability and monthly payment.

Let's say that clients have total credit card debt of $40,000 at 20.99% with a combined minimum monthly payment of $1,200, and a personal line of credit of $20,000 at 12% with a minimum monthly payment of $300. The monthly interest cost on these debts would be roughly $900 and the combined minimum monthly payments would be $1,500. 

By consolidated these debts into a $60,000 home equity line of credit we can not only reduce the monthly payment and increase cash flow; but, we can also save a substantial amount of interest expense. For the purposes of this example, I will use a home equity line of credit rate of prime + 4%; however, it should be noted that depending who your mortgage is with, a HELOC may feature a rate in the neighborhood of prime + 1%.

As of the time of writing this podcast, prime is currently 6.45%, which means our example is going to use a rate of 10.45%, which is not far off of the personal loan interest rate; but, is much lower than the rate on the higher balance credit cards.

Using the interest rate of 10.45% for the home equity line of credit, the monthly interest cost would be $523 and the minimum monthly payment would be lender specific and would need to cover at least the interest and some principal; let's say for example, the minimum monthly payment is $623. Using this example, we have an interest savings of $377 per month, or $4,524 per year and extra cash flow of $877 per month.

As mentioned previously, it is important to ensure that a debt consolidation mortgage is the right solution and will actually put you in a better financial position. A Mortgage Broker will be able to calculate your savings and assist with building a budget to make sure that the planned debt consolidation solution is in your best interests when presenting all the benefits and drawbacks. A full review will also indicate which debts should be included and which debts may be able to be left in place in order to maximize your savings.

In conclusion, a debt consolidation mortgage is basically a mortgage refinance or the addition of a home equity line of credit or additional mortgage. The funds advanced from the lender are used to pay out higher interest debts and consolidate them all into one lower payment with less interest expense. It is important to review your options with a Mortgage Broker to see if it is the right solution for you and find out how much you can potentially save by consolidating your debt!

Today, I am going to discuss private mortgages, the difference between the types of private mortgage lenders, as well as explain some common uses and risks of a private mortgage.

First, it is important to note that a private mortgage is not for everyone, and your Mortgage Broker should exhaust all other options before recommending a private mortgage. Further, a private mortgage should only be used as a short-term solution with a clear exit plan.

When it comes to private mortgage lenders, there are mainly two different types, and one is more similar to an alternative lender than a private. This type of lender is called a Mortgage Investment Corporation, or MIC for short and then we have the regular individual private mortgage lender. There are some important differences between the two, and these differences need to be considered when deciding to proceed with either of the lenders. 

A Mortgage Investment Corporation is a collection of private investors that pool their funds together by buying shares in the corporation, much like a regular investment. The funds are then handled by the funds manager and used to fund many different mortgages through Mortgage Brokers looking for a solution for their clients when other options are lacking. A Mortgage Investment Corporation is provincially registered and requires a license to operate.

An individual private mortgage lender is a single investor that funds a mortgage using their own investment capital. This type of private lender does not need to be registered or licensed; however, they do need to operate with a licensed Mortgage Brokerage in order to lend their funds.

A private mortgage solution can be required for many different reasons, such as an unconventional property type that a conventional lender won't entertain, a new construction property, a poor credit score and history that doesn't fit conventional lender guidelines, the need for a quick closing, or even a debt consolidation solution.

As mentioned previously, no matter the reason for requiring a private mortgage, nor the type of private mortgage lender, in most cases, a private mortgage should only be a short-term solution and there should be a clear and reasonable exit strategy from the private mortgage. Even though a private mortgage may be renewable at the end of a term, renewing a private is not normally a viable strategy and may prove to be costly.

In most cases, a private mortgage will have a monthly payment, just like a conventional mortgage; however, will likely be comprised of interest only. This means that at the end of the term of the private mortgage, the amount owing will be the same or greater than the amount that was advanced on closing day. Some private mortgages do offer blended payment options; but, the payment will usually be comprised of mostly interest, with little being paid towards the principal.

Private mortgages are commonly offered in shorter terms when compared with a conventional mortgage. This fits perfectly with the fact that private mortgages are a short-term option. A common term for a private mortgage is one year and may be open, meaning it can be paid out at any time, or closed, meaning there will be a prepayment penalty if it is paid out early.

When it comes to the interest rates of a private mortgage, they are higher than a traditional lender and are set by the lender based on their source of funding and risk appetite, as well as their rate of return to their investors. It is not un-common to see private mortgage rates above ten percent; however, there are many private mortgage lenders that have competitive interest rates not very far off of a conventional alternative lender.

There are also fees involved with a private mortgage, and it is very important to pay attention not only to the fees to enter the private mortgage but also the fees and costs to get out later on. Your Mortgage Broker should review the lending documents fully and be able to communicate all fees clearly, as well as costs that should be expected, and also outline any fees that may come up later on. A great interest rate on a private mortgage may not be all that great when the fees and costs are added on and the Annual Percentage Rate is calculated.

Common fees associated with a private mortgage are lender fees, broker fees, appraisal fees, set-up fees, administration fees and increased legal fees. Potential future fees, such as renewal fees or prepayment penalties, should be clearly understood ahead of time so there are no surprises later on.

Before proceeding with a private mortgage, you should ask your Mortgage Broker if they have dealt with this lender previously, or if they are aware of their business practices and how they handle their mortgages, not only at the start; but, throughout the term to the end as well. This includes how they handle renewals in case one is required in the future. Online reviews are important as well; however, keep in mind that many of the negative reviews maybe from past clients who simply were not made aware of the pros and cons of the mortgage they were being put into. This is where full disclosure and transparency comes in and should be of the utmost of importance for all types of mortgages, especially private mortgages.

This week started with quite the surprise announcement by the Federal Government as it was announced that they were making the 'boldest reforms in decades' regarding Canada's mortgage system. The announcement of the two major changes was definitely surprising to everyone as it was not expected, and seemed to come out of nowhere.

The first announcement was that first time home buyers could now qualify for 30 year amortization on an insured mortgage whether they were buying a new build home or a resale property. This is a change from previously allowing only 25 year amortization on insured mortgages, while amending another change that came into effect August 1st that allowed first time home buyers to qualify for a 30 year amortization as long as they were buying a new build home.

As a reminder, an insured mortgage is when a home buyer has less than 20% to put down on a property and features a mortgage default insurance premium in order to be backed by the insurer and decrease risk to the lender.

The change to allowing 30 year amortization can accomplish two things; I will give examples shortly. The first is that it can lower monthly payments to allow first time home buyers to better afford their new property while getting used to home ownership. The increased cash flow can assist home buyers with this; however, the lower payment is offset by the fact that their will be an increased interest cost to the mortgage and less principal will be paid off during the term, resulting in a higher mortgage amount at the end of it. The second thing that the increased amortization can do is increase the amount that the potential home buyers would qualify for and be potentially be able to compete for a wider range of properties that they otherwise would not have had access to; however, a budget should be considered ahead of using the program for this purpose in order not to end up house broke.

To give an example of the lower payment potential that a 30 year amortization would represent, we will use a mortgage amount of $500,000 at todays average insured rates on a 5 year fixed mortgage. The mortgage payment using 25 year amortization would be roughly $2,800 compared to the mortgage payment of roughly $2,550 using 30 year amortization. This represents a difference of $250 per month and can help make the mortgage more affordable; however, as mentioned before, the downfall to this is that there is roughly an increase of $2,000 in interest expense and there will be roughly $16,000 less going towards principal over the term of the mortgage. This means that at the end of the term, the mortgage balance at renewal will be roughly $16,000 higher than it would have been if the 25 year amortization was used. There will likely be an increased mortgage default insurance premium to consider with the longer amortization; details on this will follow as the insurers have time to prepare for the upcoming changes.

It is important that clients consider the downfalls of using a longer amortization period and take advantage of prepayment options available to them when possible in order to ensure their mortgage is properly positioned for them in the future.

It is important to note that the 30 year amortization announcement is for first time home buyers buying a new build or resale property, as well as anybody purchasing a new build property, whether a first time home buyer or not.

The next example is in regards to how the longer amortization period can affect how much clients would qualify for; which means they may have the opportunity to find a property that is suitable for them that may not have been an option with the current 25 year amortization. If we use annual income of $120,000 with a down payment of $40,000 and 25 year amortization we would come up a maximum purchase price in the range of $530,000; however, if we increase the amortization period to 30 years, the maximum purchase price could potentially increase into the neighborhood of $565,000. While this can present the opportunity of having more options available and being able to compete a bit more, it does come with the same downfalls of increased interest expense and less principal being paid over the term. It also may present the downfall of clients potentially buying more home than they can afford and struggling to make mortgage payments along with other household expenses.

Before using the 30 year amortization as a way to increase purchase potential, the suitability of the program for the clients should be weighed heavily and all negative aspects should be considered. Just because you may be able to use the increased amortization to buy more house; doesn;t always mean you should. 

The other announcement was an even bigger surprise and represented a bigger change than anyone in or out of the industry expected. Many in the mortgage industry have been advocating for an increase in the cap to purchase prices in order to have an insured mortgage. Currently the maximum purchase price is $1,000,000 and is sufficient in most parts of the country; however, there has been a push to increase the maximum purchase price to $1,250,000. The federal government surprised everybody and announced that the cap for an insured mortgage was being increased to $1,500,000, which is the first change to this since 2012.

While this change will assist some home buyers with being able to enter the market with a lower down payment in the more expensive parts of the country, it's use may be limited as the amount of income required to qualify for such a large mortgage is out of range for most people. This may lead to an increase in co-signers being used; however, changes to tax rules regarding co-signing need to be considered first.

A mortgage over a million dollars with 30 year amortization for a first time home buyer can definitely present some big challenges, and affordability of the home buyers themselves needs to be carefully considered, even if there are co-signers willing to assist with the purchase.

The changes are proposed to take effect on December 15th of 2024 and before looking to take advantage of these programs, it is important to discuss the pros and cons with a Mortgage Broker beforehand.

A bridge loan is a short-term financing option designed to provide funding to 'bridge the gap' between the purchase of a new property and the sale of your existing one.  The need for a bridge loan arises when you are selling your current property and the funds that are meant to be the down payment for the new property are coming from the equity in your current property, and the closing dates do not align between the two transactions; specifically when the closing date for the new property is before the closing date for the current property.  A bridge loan is not the most common transaction, however, they do arise and it is important to know what they are and how they can benefit you when needed. It is also important to note that not all lenders offer bridge loans and ensuring that the lender who will be financing the new property does offer them is crucial to making sure you can close on the purchase; otherwise, alternative arrangements will need to be made. Discussing the need for a possible bridge loan well ahead of time with your Mortgage Broker will help to make sure proper funding is arranged.  There are some extra fees and increased interest rates with bridge loans; however, they are quite manageable in most situations and can be easily calculated by your mortgage broker. Depending on the length of time that the bridge loan is required and the amount needed, a lien may need to be registered on title for the lender to provide the financing and this may lead to increased legal fees.  In most cases, a lender will require that you have a firm purchase and sale agreement in place on your current property before providing a bridge loan; however, there are some lenders that provide bridge loans in the absence of a firm sale. These bridge loans come with extra fees; but they are a great solution when needed.  To give you an example of how a traditional bridge loan works; let's say you sell your property for $700,000 and you have $150,000 equity in it, which will be used as the down payment on the new property. The closing date for the current property is July 15th and the closing date for the new property is July 1st. In this instance since you would essentially own both properties for 15 days and your down payment wouldn't be available till the current property sells, the bridge loan lender provides the down payment until it gets repaid upon the sale of the current property.  Bridge loans can be a convenient option that may alleviate some stress in the home buying and selling process; however, it is important to discuss the details of a potential bridge loan with a Mortgage Broker ahead of time to make sure everything can be set up properly.  In conclusion, a bridge loan is a temporary financing strategy that can be put in place when closing dates between the sale of an existing property and purchase of a new property don't match up.

When it comes to understanding a mortgage for a self employed individual it is critical to recognize that the core principles of the mortgage remain the same whether you are self-employed or employed as a traditional employee. The process of securing a mortgage for a self-employed individual can be a bit different due to the nature of their income. Unlike a traditional employee who receives a steady pay cheque, self-employed workers typically experience variable income streams that can fluctuate widely from month to month or year to year. This can make it slightly more challenging for a lender to assess the clients' ability to repay the loan.  In order to obtain financing for a self-employed individual, the job of a Mortgage Broker is to work with the client to gauge how best to demonstrate their financial stability and reliability to lenders. Every lender will have different policies on which type of self-employed clients they will work with and how they assess the client's income as presented. This is why many self-employed individuals may find it challenging to obtain a mortgage, even from their bank they have dealt with for many years. Many times there will be additional documentation required beyond the standard requests for someone that is self-employed. Lenders will often look for documentation such as the companies financials, 2 to 3 years of tax returns with N O As, 6 to 12 months of bank statements and ownership documentation to show at least 2 years of self-employment, like the Master Business License or Articles of Incorporation for an incorporated business. The down payment required for a self-employed individual can be as little as 10% depending on the structure of the clients self-employment; however, we traditionally see a mortgage for a self-employed individual requiring a down payment of 20% due to the client's income structure. The source of the down payment is also important with a self-employed individual as lenders may not allow gifted down payment and require that the down payment be fully from the client's own resources. There are many mortgage programs available for a self-employed individual, the availability of the different programs mainly comes down to how the client pays themselves from their business. The simplest way to calculate the clients' income is by looking at the client's verifiable income; this is how much is shown on the client's tax return and in many cases it does not provide much qualifying power as their net income may be low. The reason for this is that self-employed individuals have a different way of declaring their income due to advantages provided by write-offs and other tax benefits; especially if the individual is incorporated. An individual that is incorporated or owns an incorporated business has a few options when it comes to paying themselves from the business, and may even pay themselves only enough to cover their personal expenses while electing to keep money within the business. The benefit to this is a lower taxation expense; however, the trade-off is that there may be issues qualifying for a mortgage based on the clients' income; this is where a 'stated' or 'declared' income mortgage product comes in. These mortgages may require the client to declare their income and the lender will use different methods to verify and ensure that the declared income is realistic and will provide an opportunity for the client to repay the mortgage. These mortgages may feature slightly higher interest rates and have fees; although, when compared with the tax savings, the higher interest and fees make much more sense than paying more tax to the Government. It is always recommended that clients discuss their financial situation with their accountant and financial advisor, as well as their mortgage broker; in order to structure their finances in such a way that provides the most benefit to the self-employed individual. Having professionals in each field involved in the process and providing feedback is crucial. More and more people in Canada are choosing to be self-employed and lenders are responding with different mortgage products and programs in order to provide these individuals with an opportunity to obtain financing for a dream home for them and their families. In conclusion, a mortgage for a self-employed individual is the same as a mortgage for a client that is employed in a traditional manner, the difference comes down to how the client's income can be calculated. There are different options available, however, some of these options may not be available based on the client's verifiable income. It is important that a self-employed individual work with a Mortgage Broker in order to review the different mortgage products available to them and ensure they have the most suitable option in place for them and their family. Feel free to reach out at (905) 440-5392 with any questions on self-employed mortgages or anything else mortgage related!

So, you've come across these terms - variable rate mortgage and adjustable rate mortgage, and you're curious to know what exactly sets them apart. Well, let's dive right in and explore the differences between these two commonly used terms in the world of mortgages. When talking about mortgages, the interest rate is a crucial element to consider. It determines the amount of interest you'll pay on your mortgage and affects your monthly payments. Both variable rate mortgages and adjustable rate mortgages have interest rates that can change over time based on the lender's prime rate, but there are some key distinctions between the two. A variable rate mortgage (also known as a static payment variable mortgage) is a mortgage where even as the interest rate changes, your payment remains the same. What does change is how your payment is allocated between principal and interest. As interest rates rise, more of your payment will go towards interest with less towards principal; and vice versa when rates come down. The payment on a variable rate mortgage may need to change if interest rates go too high and the payment isn’t enough to cover any principal at all; which can result in a mortgage that grows instead of reduces. Lenders will commonly contact clients to advise them of options in order to not let this happen; some lenders will even automatically adjust the payment as well to ensure there is always a little bit of principal being paid down. On the other hand, an adjustable rate mortgage is a mortgage where the payment fluctuates in lockstep with interest rate changes. When interest rates go up, so too does your payment; although, when rates come down, your payment does as well. This type of mortgage ensures that your amortization remains the same and you are always paying down principal even when rates are going up. There can be some pain and decreased cash flow when rates are going up; however, a decrease in rates will result in some breathing room due to an increase in cash flow. The frequency of rate adjustments on a variable or adjustable rate mortgage can vary; many lenders typically adjust the rate in the next month following the rate adjustment; while others will adjust it right away. If you have a variable or adjustable rate mortgage, it is important to know when your lender makes their change so you are well prepared. Most lenders adjust their prime rate based on the Bank Of Canada’s policy interest rate, which has the potential to be adjusted as many as 8 times a year; it is recommended to know when these meetings are; the next one is April 10th, 2024. When deciding between a variable rate mortgage and an adjustable rate mortgage, there are a few factors to consider. Firstly, think about your financial situation and how comfortable you are with potential changes in your monthly payments. If you're on a tight budget and prefer a more predictable payment structure, a fixed-rate mortgage may be a better fit. On the other hand, if you have some flexibility and are prepared for potential rate adjustments, a variable rate or adjustable rate mortgage could be worth considering. If you are prepared for some risk and still want the certainty of a fixed payment then a variable rate mortgage may be the most suitable option; however, it is important to understand the risks of that fixed payment. Remember, choosing the right mortgage type is a significant financial decision that should be based on your unique circumstances and goals. Consulting with a knowledgeable mortgage professional can provide insight and guidance to help you make an informed choice. Feel free to reach out at any time to discuss your options as well as your current situation to make sure it is the right fit for you and your family. In conclusion, the key difference between a variable rate mortgage and an adjustable rate mortgage lies in their payment adjustment mechanisms. With a variable rate mortgage you will have some payment certainty; but, this payment may not cover any principal versus an adjustable rate mortgage where you will always be paying down principal; however, may be in for a bit of a ride if rates adjust. Understanding these differences and carefully evaluating your financial situation and market conditions can help you choose the right mortgage option for you and your family.

When it comes to applying for a mortgage, there are two important numbers that your Mortgage Broker will pay attention to when qualifying you for the mortgage. These are your Gross Debt Service, or GDS, and Total Debt Service, or TDS, ratios. They are commonly referred to as the debt service ratios or qualifying ratios, and depending on the type of mortgage product you require, they may be the most important aspect of your application and possibly the deciding factor in whether you are approved for the mortgage or not.

The purpose of the GDS and TDS is to determine whether the future mortgage payment can be afforded by the potential borrower. It is important to note that for mortgages, when calculating the GDS and TDS, your Mortgage Broker will use a rate that is different from your actual contract rate, in order to keep within regulations. This is called applying the 'Stress Test' and we use the benchmark rate of 5.25% or your contract rate plus 2%, whichever is higher. As an example, let's say the current contract rate is 4.99%. Your Mortgage Broker will need to use 6.99% in order to calculate your GDS and TDS to qualify you for the mortgage.

The 'Stress Test' is put in place to ensure that borrowers can not only afford their mortgage payment currently, but can also afford the payment if rates were to rise in the future.

In the instance of an Insured mortgage, one with less than 20% down payment, and an Insurable mortgage, one with more than 20% down, but still within the guidelines of an Insured mortgage; the maximum GDS and TDS are 39% and 44% respectively. There are no exceptions allowed and a clients GDS and TDS cannot go over the maximums, even by the slightest point of a percent.

Some Uninsured mortgage lenders do have programs available that feature extended qualifying ratios where the lender will mitigate the higher GDS and TDS numbers by looking at the strength of the application overall and potentially approve the client even with a higher GDS and TDS.

The Gross Debt Service, or GDS ratio is calculated by dividing the total housing costs by the total household gross income, or income before taxes. Basically, it calculates the percentage of a client's income that is required to pay all monthly housing costs. The amounts used for housing costs are the qualifying mortgage payment, including principal and interest, as well as property tax and heat expense. For condominium properties, half of the condominium fees are also included. When applying for a 2nd or 3rd mortgage, the other mortgage payments would also be included in this calculation as well.

For example, if your household income is $150,000 annually, or $12,500 monthly; the total housing costs must be less than 39%, meaning $58,500 per year, or $4,875 per month. If the housing expenses were to amount to more than $4,875 per month, the mortgage may not be approved.

The calculation for the Total Debt Service, or TDS ratio is similar; however along with housing expenses used to calculate the GDS, it includes all other liabilities as well. This will include any other liability that would result in a balance owing if not paid; such as credit card payments, line of credit and loan payments, car payments, child support, and others. Housing expenses for any other properties would also be included in the TDS calculation.

Using the example from before, if your household income is $150,000 annually, or $12,500 monthly; the total housing costs and other liabilities must be less than 44%, or $66,000 per year, or $5,500 per month. If they were to calculate higher, the mortgage may not be approved.

When applying for a mortgage, it is important that your Mortgage Broker properly calculates your GDS and TDS ratios ahead of time and knows different lenders guidelines regarding maximum ratios. This will ensure that you are aware of the maximum mortgage that you would qualify for.

While it is true that there are many things considered when you apply for a mortgage, such as credit score and credit history; the GDS and TDS ratios are often the most important factor and may present a hard stop on an application. Going over the maximum ratios may lead to a mortgage application being declined even when everything else on the file is good.

The mortgage stress test is an important aspect of the mortgage application process that aims to determine whether borrowers can still afford their mortgage payments in the event of a financial stress or interest rate increase. So, here's how it works. When you apply for a mortgage in Canada, the lender will assess your ability to repay the loan by considering a number of factors such as your income, employment history, credit score, and the size of your down payment. However, the stress test adds an extra layer of scrutiny to ensure that you can handle your mortgage obligations even under challenging circumstances. The stress test requires borrowers to qualify at a higher interest rate than the one they would actually be paying. Currently, the benchmark interest rate used for the stress test is the Bank of Canada's benchmark rate or the interest rate offered by your lender plus 2%, whichever is higher. This ensures that borrowers are able to make their mortgage payments even if interest rates rise in the future. Now, let's dive a bit deeper into how the stress test affects borrowers. The test applies to insured mortgages and borrowers who have a down payment of less than 20%. For these borrowers, they must qualify at the higher posted rate. For example, if the current interest rate for a five-year fixed-rate mortgage is 5%, the borrower would have to qualify at the stress test rate of 7%. This higher rate increases the monthly mortgage payment, which can impact your overall borrowing capacity. The stress test also applies to uninsured mortgages, which are home loans with a down payment of 20% or more. In this case, borrowers must qualify at a minimum rate of the greater of the five-year benchmark rate or the contract rate plus 2%. This means that even if you have a large down payment, you still need to prove that you can afford your mortgage payments at a higher interest rate. Why was the stress test introduced in Canada? The main goal is to protect both borrowers and lenders from potential financial risks. By ensuring that borrowers can still afford their mortgages during times of financial strain, the risk of defaults and subsequent financial instability is reduced. Additionally, the stress test helps to prevent homebuyers from taking on more debt than they can handle, which can lead to financial hardship down the line. It's important to note that the stress test has drawn some criticism since its implementation. While it does add an extra layer of protection, some argue that it has made it more difficult for first-time homebuyers to enter the housing market. This is because the stress test can lower the borrowing capacity of potential buyers, making it harder for them to qualify for a mortgage. It is even more important to note that since early 2022 we have seen the stress test protect against the exact situation that it was intended for and has undoubtedly protected those same potential buyers who unfortunately could not enter the housing market from financial difficulty. Overall, the Canadian mortgage stress test is a measure put in place to ensure that borrowers can handle their mortgage payments even in challenging financial situations or in the face of rising interest rates. While it has its pros and cons, its ultimate goal is to promote financial stability and protect both borrowers and lenders in Canada's housing market.