Under CP Code, which scenario would trigger affordability stress testing?

Under CP Code, which scenario would trigger affordability stress testing?

• A. Job loss
• B. Lender takeover
• C. Mortgage rate increase
• D. All of the above

Answer: (C)

Affordability stress testing is about checking whether a borrower could still meet loan repayments if borrowing costs rise. The CP Code requires testing under adverse conditions, typically by applying a stressed rate that makes repayments higher. A mortgage rate increase directly raises the monthly payment, so it clearly tests the borrower’s ability to cope with higher costs. Changes like job loss affect income availability, and a lender takeover is an operational change, not a direct change in the loan’s payment obligation. Those aren’t the scenarios the affordability stress test targets in the same way. So, the scenario that triggers affordability stress testing is a mortgage rate increase.

Affordability stress testing is about checking whether a borrower could still meet loan repayments if borrowing costs rise. The CP Code requires testing under adverse conditions, typically by applying a stressed rate that makes repayments higher.

A mortgage rate increase directly raises the monthly payment, so it clearly tests the borrower’s ability to cope with higher costs. Changes like job loss affect income availability, and a lender takeover is an operational change, not a direct change in the loan’s payment obligation. Those aren’t the scenarios the affordability stress test targets in the same way.

So, the scenario that triggers affordability stress testing is a mortgage rate increase.