A deep-dive into the mortgage stress tests (Part 2): They’re necessary, but the design is flawed

The stress testing required for Canadian homebuyers looking to qualify for mortgages has become flawed and is creating more risks. While stress testing was necessary, the design is now flawed and has made alternative mortgage options more appealing, thereby increasing the amount of interest paid compared to if the mortgages were via prime lenders. The high qualifying interest rates have also affected mortgage choices and caused a shift towards non-insured, non-traditional lenders. This shift has led to increased payments and increased risk, as less funding may be available for renewals by alternative lenders. There have been calls for the government to lower the barriers preventing transfers of those mortgages to regulated lenders and/or insured mortgages. Additionally, there are concerns that borrowers could be trapped at their current lender and therefore be exploited by that lender. In conclusion, the stress testing has created risks, and the design should be reevaluated.