What is Stress Test (Mortgage Stress Test) in Canadian mortgages?
Borrowers must qualify at a higher interest rate to ensure affordability if rates rise. Calculated as the maximum of contract rate + 2% or 5.25%.
Why Stress Test matters
The stress test is the check that most often separates an approval from a decline at an A-lender. It sets the payment used in GDS and TDS, and a payment calculated 2 percentage points higher can reduce the maximum mortgage by roughly 15% to 20%.
How is Stress Test calculated?
Stress Test example
Worked example
A 4.5% contract rate requires qualification at 6.5%.
How brokers use Stress Test
- Qualify at the higher of the contract rate plus 2% or 5.25%. A contract rate of 3.25% or less is therefore tested at 5.25%.
- Insured mortgages are stress tested at every lender. Uninsured mortgages are stress tested at federally regulated lenders, while many credit unions and private lenders use their own tests.
- Since November 2024, an uninsured straight switch to another federally regulated lender at renewal is exempt from the test. Refinances and increases in the loan amount are not.
- If a client fails the test, restructure with a larger down payment, a co-borrower, paying down debt, or placing the file with a lender that uses a different test.
More questions about Stress Test
Who has to pass the mortgage stress test?
Anyone with an insured mortgage, and anyone with an uninsured mortgage at a federally regulated lender such as a bank. Provincially regulated credit unions and private lenders set their own rules.
Why is the minimum qualifying rate 5.25%?
It is the floor in OSFI Guideline B-20. It makes sure borrowers are tested at a meaningful rate even when contract rates are low.