Higher interest rates and the stress test

One of the biggest shifts in recent years has been higher interest rates.

When rates go up, the mortgage stress test becomes tougher. Most borrowers need to qualify at the higher of:

• The benchmark qualifying rate, or

• Their actual contract rate plus 2%

If your original mortgage was at a much lower rate, you likely passed the stress test with room to spare. At renewal, if today’s rates are higher, your qualifying rate can also be much higher—sometimes several percentage points above what you’re actually paying.

That can affect whether a new lender can approve you, even if you’ve never missed a payment.