
If you’re planning to buy a home in Canada or refinance your mortgage, you’ve probably heard the term mortgage stress test. But what exactly is it, and how does it affect your ability to borrow?
Introduced by the federal government in 2018, the mortgage stress test is a financial safeguard designed to ensure that borrowers can afford their mortgage payments—even if interest rates rise in the future. It applies to both insured (less than 20% down payment) and uninsured (20% or more down payment) mortgages.
How Does the Stress Test Work?
When you apply for a mortgage, your lender is required to qualify you at a higher interest rate than what you’ll actually pay. As of now, this rate is either:
- The Bank of Canada’s five-year benchmark rate, or
- Your mortgage contract rate plus 2%,
whichever is higher.
So even if your lender is offering you a rate of 4.5%, you may be tested at 6.5%. This ensures that you can still handle your payments if rates rise or your financial situation changes.
Why It Matters
This stress test reduces the amount you can borrow. Many buyers are surprised when their purchasing power drops by tens or even hundreds of thousands of dollars under the stress test. It’s not designed to block you from owning a home—but to make sure you’re not financially overextending yourself.
For example, if you’re pre-approved for a $700,000 mortgage at 4.5%, the stress test might only qualify you for around $570,000. That difference can significantly impact the type of home and location you can afford.
Who Is Affected?
The stress test applies if you’re:
- A first-time homebuyer applying for a new mortgage
- Renewing your mortgage with a different lender
- Refinancing to access your home equity
- Taking out a home equity line of credit (HELOC)
If you’re renewing with your current lender and not increasing your loan amount, the stress test does not apply.
Tools You Can Use
To get a clear picture of how the mortgage stress test might affect your affordability, use these helpful calculators from the Financial Consumer Agency of Canada (FCAC):
- Mortgage Qualifier Tool – Estimate how much you may qualify for under current stress test rules.
- Mortgage Summary Report Tool – Generate a personalized summary to understand your mortgage affordability better.
Final Thoughts
The mortgage stress test may seem like a hurdle, but it’s really a financial safety net. It encourages responsible borrowing and helps protect both lenders and homeowners from unexpected financial shocks. In today’s market, where interest rates can shift rapidly, being prepared is more important than ever.
Still unsure what you can afford or how the stress test applies to you? A mortgage broker or financial advisor can walk you through your options and help you plan wisely.
Want to see how the stress test affects your personal situation? Try out the Mortgage Qualifier Tool or view your Mortgage Summary Report.
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