How To Bypass Canada’s Mortgage Stress Test When It Gives a False Negative

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Published: June 17, 2019 • Last updated: October 10, 2022 at 16:56 pm

Failing a Mortgage Stress Test Doesn’t Have to Mean ‘No’ to a Mortgage

While the mortgage stress test was designed to help ensure Canadians don’t overstep their financial means, there are instances where it makes sense to bypass this process, yet still, keep affordability top of mind.

And, while you won’t necessarily have to adhere to a stress test when renewing a mortgage with your current lender, it still makes sense to weigh your options to ensure you’re matched with the mortgage product and rate that best meets your unique needs. Some lenders will never entertain a unique solution based on a specific borrower request.

Katherine’s Story: Bank Won’t Consider Child Tax Benefits

Case in point is a scenario involving my client, Katherine, who owns a home in Durham Region worth $425,000. Her mother co-signed for the initial mortgage years back. However, for estate planning reasons, mom’s name needed to come off the title, leaving the property solely in Katherine’s name.

Katherine reached out to the bank where she holds her mortgage to set the title change in motion. But what she received in return was a hard NO. With an annual income of $50,000, the bank wouldn’t even consider the thought of Katherine being able to service a $300,000 mortgage on her own, regardless of her story.

If you need non-traditional income sources like child tax benefits to pass the mortgage stress test, consider a mortgage broker instead of an inflexible big bank when applying for a mortgage. #MortgageStressTest Share on X A broker can often get a ‘YES’ when everyone else says ‘NO’.

A single mother of two, Katherine receives no child support. But, she does get child tax benefits totalling $940 per month – $11,280 annually. That provides quite a boost to Katherine’s income when used to qualify the mortgage, bringing a $50,000 salary above $61,000.

But, you see, Katherine’s bank said this still wouldn’t help her approval.

Different Lenders Often Have Different Guidelines

As mortgage brokers, we have access to a wide variety of lenders – including banks, trust companies and credit unions, as well as alternative and private funders – a few of whom WILL consider child tax benefit as part of the income supporting the application.
The mortgage stress test, however, still poses an issue with many lenders.

Fast forward to May 2020, and now most lenders ARE accepting child tax benefit as a source of income for mortgage qualification purposes. It might be a coincidence, but it seems to me the timing dovetails with the COVID-19 pandemic crisis, and so many households suffering from a reduction in income.

At ASKROSS our job is to stay on top of product offerings from a wide variety of specialty lenders. We knew of a specific alternative lender that would be perfect for Katherine, as a stress test is not required to fund the mortgage.

NPX from Merix Financial was the winning lender in this case. Not only do they offer their MAX mortgage product, which qualifies the applicants on the mortgage contract rate, not the “stress rate”, but they also allow the inclusion of child tax benefit income. BINGO!

Katherine was offered a five-year fixed-rate mortgage at 3.74%, with no lender fee, even though NPX is considered an alternative, or “B-lender”.

And, if she wished to pay a one-time 1% lender fee, we could get a reduction in her interest rate to 3.44%.

A decline is not the end of your story

If you’re turned down when looking for a new mortgage or while refinancing or renewing an existing mortgage, you still have options.

If you’re working with a professional who has access to multiple product lines available through a large pool of lenders, there will always be a solution available to fit your needs.

Has the mortgage stress test failed you? Ask Ross how he can help.

​Ross Taylor
One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents

Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column ​ in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.

With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.

If you have questions about anything financial or mortgage-related, please contact [email protected]. Ross answers everyone personally.

​For more information, visit About Ross Taylor.