Category Archives: Stress Test

Frank Mueller

Weekly Update – May 11, 2018

“Nobody likes high interest rates” – Chanda Kochhar

Bank of Canada Raises Five-Year Fixed Mortgage Rate

The Bank of Canada raised its conventional five-year fixed mortgage rate on Wednesday, from 5.14% up to 5.34%. As we all now know, the BoC’s five-year fixed rate is a crucial piece of information for prospective home buyers in Canada. Exactly how this

Less Than 20 Per Cent Down Payment

These prospective buyers must qualify for their mortgage at the BoC’s five-year fixed rate of 5.34 per cent, rather than the rate offered by their lender. For reference, the current five-year fixed rate at one of the “Big Five” Canadian banks is currently 3.74 per cent.

20 Per Cent Down Payment or More

For home buyers with 20 per cent down or more, they must qualify at the greater of the BoC five-year fixed rate, or the agreed upon rate with their bank plus 200 basis-points (two per cent).

So, using the above current five-year fixed rate, purchasers with at least 20 per cent down will have to qualify at the rate of 3.74 + 2.00 = 5.74 per cent, because the “bank rate plus 200 basis-points” exceeds the BoC’s current 5.34 per cent.

Stephen Poloz: Canadian Economy “Finally Positive”; Future Rate Hikes Possible

Stephen Poloz, Governor of the Bank of Canada recently stated that the economy was “finally positive”, adding that he was more encouraged about the economy than he was six months ago.

Poloz did caution that there are still areas of softness within the Canadian economy, as well as high levels of consumer debt. As such, the BoC will need to exercise caution with future rate hikes, to avoid future instability.

While the BoC opted not to raise its key rate steady at 1.25 per cent, analysts pegged a 70 per cent chance of a BoC rate hike in July.

Canadians should look at the potential of further rate increases as a reminder to diligently pay down debt where possible. As always, if dealing with multiple types of debts (credit card balances, student loans, mortgages, lines of credit, etc), attack those debts with the highest interest rates. This almost always means paying down credit cards first. Credit card debt is portfolio poison.


North America

  • The TSX closed at 15983, up 254 points or 1.61% over the past week. YTD the TSX is down -1.39%.
  • The DOW closed at 24831, up 568 points or 2.34% over the past week. YTD the DOW is up 0.45%.
  • The S&P closed at 2728, up 65 points or 2.44% over the past week. YTD the S&P is up 2.02%.
  • The NASDAQ closed at 7403, up 193 points or 2.68% over the past week. YTD the Nasdaq is up 7.24%.
  • Gold closed at 1318, up -9.00 points or 0.15% over the past week. YTD gold is up 0.61%.
  • Oil closed at 70.52, up 0.77 points or 1.10% over the past week. YTD oil is up 16.72%.
  • The USD/CAD closed at 0.7817, up 0.0017 points or 0.22% over the past week. YTD the USD/CAD is down -1.71%.


  • The MSCI closed at 2124, up 53 points or 2.56% over the past week. YTD the MSCI is up 1.00%.
  • The Euro Stoxx 50 closed at 3566, up 15 points or 0.42% over the past week. YTD the Euro Stoxx 50 is up 1.77%.
  • The FTSE closed at 7725, up 158 points or 2.09% over the past week. YTD the FTSE is up 0.48%.
  • The CAC closed at 5542, up 26 points or 0.47% over the past week. YTD the CAC is up 4.31%.
  • DAX closed at 13001, up 181.00 points or 1.41% over the past week. YTD DAX is up 0.64%.
  • Nikkei closed at 22759, up 286.00 points or 1.27% over the past week. YTD Nikkei is down -0.03%.
  • The Shanghai closed at 3163, up 72.0000 points or 2.33% over the past week. YTD the Shanghai is down -4.35%.

 Fixed Income

  • The 10-Yr Bond Yield closed at 2.97, up 0.0300 points or 1.02% over the past week. YTD the 10-Yr Bond Yield is up 23.75%.



Sources: Dynamic,

Frank Mueller

Weekly Update – October 20, 2017

“I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money” – Arthur Godfrey

TSX Rises for 6th Straight Week

The Toronto Stock Exchange’s S&P/TSX composite index rose by 39.22 points (0.25%) on the day to close at 15,857.22. This represents a gain of 50.05 points (0.50%) over last week’s 15,728.32 finish.

Gains came from across the board, as 9 of the 10 major Index Sectors posted gains.

Brent crude jumped nearly a dollar per barrel to settle at $57.17 (USD) per barrel, as post-hurricane inflation continued to rise.

The Loonie was roughly even for the week, until the U.S. Senate passed their budget resolution on Thursday. On Friday, the CAD dropped by 82 basis points (1.09%) to finish at 79.22 cents USD as the Greenback surged in reaction to the budget resolution.

U.S. Markets Rise on Tax Cut Optimism, Encouraging Q3 Earnings Reports

On Thursday the U.S. Senate passed a budget resolution that raised optimism President Trump will be able to get his tax-cut blueprint put into effect. On Friday, the major U.S. Indices were up on this optimism.

The Dow Jones Industrial Average (DJIA) spiked 165.32 points (0.71%) to finish at 23,328.36. For the week, the DJIA was up a full 2%. Like the TSX, the DJIA advanced for the 6th straight week.

The S&P 500 was up 13.07 points (0.51%) to close 2,575.17. For the week, the S&P 500 was up 0.86%.

The NASDAQ jumped 23.99 points (0.36%) on Friday to end the week up 0.35% at 6,629.05. The NASDAQ has now posted gains 4 weeks running.

Consumer confidence, as well as strong Q3 earnings calls thus far – 70% of S&P 500 companies so far have posted Q3 earnings that beat street expectations – means continued positive movement is expected, say analysts.

Q3 earnings, overall investor optimism, and the budget resolution passing all worked to put downward pressure on Gold (a classic safe-haven asset). Gold dropped by $8.20 USD per ounce on Friday to finish at $1,281.80. This represents a loss of $24.30 (1.86%) USD per ounce compared to last Friday’s finish of $1,306.10 per ounce.

OSFI Makes Uninsured Mortgage Stress Test Official

As first mentioned on our Weekly Update for July 28, 2017, the OFSI made the Uninsured Mortgage Stress Test official this week. The changes take effect January 1, 2018 (looks like we nailed the date on this one!).

You can read our original post on the subject here.

The biggest change to the original proposals is the stress test rate to be applied. Originally, the stress test rate was proposed to be the mortgage rate the borrower had access to, plus 200 basis points (2%). So, a rate of 2.50% would result in a stress test qualifying rate at 4.50%.

However, the final stress test calculation is measured as the greater of the lender’s rate + 200 basis points OR the Bank of Canada’s Posted Five Year Fixed Rate, currently 4.89%.

So, the minimum stress test rate will therefore be 4.89% (if rates are unchanged from today until January 1, 2018), and will be higher if bank’s increase their lending rates.


North America
The TSX closed at 15,857, up 50 points or 0.32% over the past week. YTD the TSX is up 3.80%.
The DOW closed at 23,329, up 457 points or 2.00% over the past week. YTD the DOW is up 18.04%.
The S&P closed at 2,575, up 22 points or 0.86% over the past week. YTD the S&P is up 15.01%.
The Nasdaq closed at 6,629, up 23 points or 0.35% over the past week. YTD the Nasdaq is up 23.15%.
Gold closed at 1,282, down 29.00 points or 1.84% over the past week. YTD gold is up 12.65%.
Oil closed at 51.66, up 0.24 points or 0.47% over the past week. YTD oil is down 1.07%.
The USD/CAD closed at 0.79, down 0.0100 points or 1.25% over the past week. YTD the USD/CAD is up 6.48%.

The MSCI closed at 2,033, up 9 points or 0.44% over the past week. YTD the MSCI is up 15.97%.
The Euro Stoxx 50 closed at 3,605, changed 0 points or 0.00% over the past week. YTD the Euro Stoxx 50 is up 9.54%.
The FTSE closed at 7,523, down 12 points or 0.16% over the past week. YTD the FTSE is up 5.32%.
The CAC closed at 5,372, up 20 points or 0.37% over the past week. YTD the CAC is up 10.49%.
DAX closed at 12,991, down 1.00 points or 0.01% over the past week. YTD DAX is up 13.15%.
Nikkei closed at 21,458, up 303.00 points or 1.43% over the past week. YTD Nikkei is up 12.26%.
The Shanghai closed at 3,379, down 12.0000 points or 0.35% over the past week. YTD the Shanghai is up 8.86%.

Fixed Income
The 10-Yr Bond closed at 2.38, up 0.1000 points or 4.39% over the past week. YTD the 10-Yr Bond is down 2.86%.

Sources: Globe Advisor, Yahoo! Finance, Dynamic Funds

Frank Mueller

OSFI to Make Conventional Mortgage Approvals More Difficult

As we mentioned in our Weekly Update for July 28th 2017, the Office of the Superintendent of Financial Institutions (OSFI) released a set of proposals that would serve to tighten up the conventional mortgage market. The objective of these proposals is to protect would-be home buyers from over-extending themselves during our current low-rate environment against further rate increases; additionally, the measures look to protect banks from creditor default risk.

On a more basic level, the proposed measures have been put forth to protect the economy overall. Canadians owed an average of $1.67 per $1 of disposable income, according to a debt-to-income report released by Statistics Canada in December of 2016. The Bank of Canada, as well as many of the “Big 5” banks, has been vocal about household debt levels. The Bank of Canada has also raised concern over inflated house prices in major Canadian markets such as Toronto, Vancouver, and recently including Victoria and Hamilton. Rising rates and an uptick in unemployment could lead to increased mortgage defaults.

How Would It Work?

The counteractive proposal for uninsured, conventional mortgages would require potential buyers to qualify for their mortgage using a new stress-test qualifying interest rate. Where the high-ratio stress-test rate is simply the Bank of Canada’s 5-year fixed rate (recently raised to 4.84%), the conventional stress-test rate would be the street rate offered by the lender plus 200 basis-points (2%).

So, let’s say you have a mortgage rate offered by your bank or credit union for 2.85%. When qualifying, your bank/credit union would use the stress-test rate of 2.85% + 2.00% = 4.85%. The logic is simple: if you can qualify – and afford – your payments at a rate of 4.85% in this case, then surely, you’ll be able to absorb an interest rate hike of 25bps (as we’ve experienced twice now in the last 3 months).

Of course, it’s important to remember that the borrower would only be exposed to the increased rate when their current mortgage term expires.

What’s the Bottom Line?

Analysts believe that if enacted, prospective borrowers would lose about 20% of their purchasing power. For instance, if without the stress-test, a borrower could qualify for a $1 Million mortgage, when using the stress-test, the same borrower would only qualify for an $800K mortgage.

If enacted, this proposal would look to cool the overheated Canadian real estate markets with a more precise, surgical approach, rather than the more broad-based interest rate hikes (which affect the economy overall due to cost of borrowing, the effect on the Canadian dollar, etc).