Understanding Mortgage Stress Tests in Canada: What Every Buyer Should Know
You’ve found a home you love. You’ve run the numbers. You’re ready to get a mortgage. But then comes a surprise—you’re told you need to pass a mortgage stress test first.
If you’re buying in Ontario or anywhere else in Canada, this step is mandatory. But it often catches buyers off guard. Let’s break it down so you know exactly what to expect and how to prepare.
What Is the Mortgage Stress Test?
The stress test is a federal rule that ensures you can still afford your mortgage payments even if interest rates rise.
When you apply for a mortgage, lenders won’t just look at the rate you’re being offered. They’ll also calculate whether you could still make your payments at a higher rate—usually:
- The greater of:
- Your contract rate plus 2%
- Or the Bank of Canada’s benchmark rate (currently around 5.25%)
Even if you’re getting a mortgage at 4.59%, you’ll need to qualify as if you’re paying 6.59% or more.
Why Does the Stress Test Exist?
The purpose is to protect borrowers from taking on more debt than they can handle. If rates go up in the future—and they have in recent years—the stress test ensures that your finances can still keep up.
It’s also designed to create more long-term stability in Canada’s housing market. But for many buyers, especially first-timers, it can be a frustrating hurdle.
Who Needs to Pass the Stress Test?
The stress test applies to:
- All insured mortgages (less than 20% down payment)
- Uninsured mortgages (20%+ down) from federally regulated lenders
- Mortgage renewals if you’re switching lenders
- New mortgage applications, refinances, or adding someone to title
Even if your finances are solid, the stress test could reduce the total mortgage amount you qualify for.
How It Affects Your Buying Power
Let’s say you earn $100,000 annually and have minimal debts. Based on today’s rates, you might think you qualify for a $600,000 mortgage. But under the stress test, your lender might only approve you for $525,000 or less.
That’s why many buyers find they can afford the monthly payments in reality—but still fail the test on paper.
How to Improve Your Chances of Passing
If you’re worried about qualifying, here are a few ways to strengthen your application:
- Pay down debts: Your total debt service ratio (TDS) is a big factor. Lower debt = higher approval odds.
- Increase your down payment: The more equity you bring, the less risk for lenders.
- Extend your amortization: A longer repayment period can lower your monthly obligation (though it increases total interest).
- Add a co-borrower: A partner or family member with stable income can help you qualify.
- Work with a broker: Brokers can position your file with lenders that offer more flexibility, and help you understand what numbers really matter.
What If You Don’t Pass?
Not passing the stress test doesn’t mean you’re done—it just means you’ll need to adjust your plan.
That could mean:
- Looking at lower-priced homes
- Exploring lenders who accept more creative income solutions
- Working with a broker who can structure your application for alternative lenders
Understanding the stress test before you apply puts you in a much better position to succeed. It’s not just about hitting a number—it’s about showing lenders that your mortgage fits your overall financial picture.
If you want to find out where you stand before applying, a mortgage broker can help run a pre-qualification based on current stress test rules and lender criteria.
Want a second opinion or need help planning around your numbers? Reach out to Anton Mortgage. We’ll help you understand what’s possible—and what to do next.