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Canada began stress testing mortgage borrowers around 2016, preparing borrowers for higher rates. In its current iteration, the test ensures payments can be made on the contract plus 2 points, or a minimum floor — whichever is higher. This lowers leverage and gives a buffer for borrowers to prepare for any sudden shock. So far, it’s helped to mitigate forced selling or defaults. However, it may not have been enough for this environment. not have been high enough.
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