The mortgage stress test, explained

What the qualifying rate is

Lenders don't approve you at the rate on your offer. They test your payment at the minimum qualifying rate: whichever is higher of 5.25% or your contract rate plus two percentage points. On a 4.39% offer, you're tested at 6.39%.

The same rule is set by OSFI's Guideline B-20 for uninsured mortgages at federally regulated lenders, and by the federal insurance regulations for every insured mortgage.

How it changes what you can borrow

The tested payment has to fit inside your debt ratios: usually no more than 39% of gross income for housing costs (GDS) and 44% for all debts (TDS). Because the tested payment is higher than the real one, the stress test lowers the largest mortgage you can get.

You still pay your actual rate. The test only decides how much you can borrow.

When you don't need to pass it

Renewing with your current lender doesn't require re-qualifying. Since November 21, 2024, moving an uninsured mortgage to a new lender at maturity doesn't either, as long as the amount and amortization stay the same and no new money is added. Insured switches were already exempt.

A refinance, which adds money or extends the amortization, is still stress-tested.

Lenders outside the rule

Provincially regulated credit unions and private lenders aren't bound by B-20, and some qualify borrowers at other rates. They usually charge more for that flexibility. A broker can tell you when one is worth it.