The Canadian Mortgage Stress Test
There’s no need to stress about the mortgage stress test. Here’s everything you need to know, including the latest updates.
Updated 
8 min. read
There’s a lot to consider when applying for a mortgage. There’s interest rates, escrow, closing costs, and so much more. And for Canadian homebuyers, there’s one more important thing to keep in mind – the mortgage stress test.
The mortgage stress test impacts whether you qualify for a mortgage and how much you can borrow, whether you’re buying a home or refinancing. Since it’s introduction in 2018, the rules have undergone several updates that mortgage applicants should be aware of.
There’s no need to worry about the mortgage stress test. Here’s everything you need to know most about the mortgage stress test, including how it works and the most recent changes.
What is the Mortgage Stress Test?
The mortgage stress test affects Canadian home buyers and existing homeowners. Basically, the mortgage stress test states that mortgage applicants have to prove they can afford their mortgage payments, even if interest rates were to rise in the future.
As of 2018, all Canadian homebuyers are required to pass the mortgage stress test, no matter your down payment amount.
In short, the rule is actually meant to protect homebuyers from taking on too much debt and potentially getting into a situation where they can’t afford the interest on their mortgage payments.
The mortgage stress test was first introduced by the Office of the Superintendent of Financial Institutions (O S F I), a federal bank regulator. The test is designed to help ensure that mortgage applicants can handle their payments, even if interest rates rise later on.
Why is the Mortgage Stress Test important?
Most homeowners will renew their mortgage several times before fully paying it off. And each time, it’s possible that your interest rate will change or potentially increase. That’s why the mortgage stress test requires applicants to prove they can still afford to make their payments, even if rates were to rise beyond their initial rate.
If you’re buying a home, the mortgage rules will directly affect how much you can afford, and you will need to prove that you can still make your monthly payments if interest rates were to rise. Already have a mortgage? You’ll face a mortgage stress test if you refinance your home, take out a homeowner line of credit, or switch to a new lender (but not if you renew with the same lender).
This test will have a direct impact on:
- Whether you qualify for a mortgage
- How much you can afford to borrow
The goal is to help prevent individual homeowners from taking on too large of a mortgage and risk not being able to make their payments. For some home buyers, you may need to lower your home buying budget or increasing the size of your down payment in order to pass the mortgage stress test.
When is a Stress Test Needed?
In Canada, you’ll be required to undergo a mortgage stress test when you:
- Buy a new home
- Refinance your current mortgage
- Apply for a home equity line of credit (HELOC)
- Switch your existing mortgage to a new lender (in some cases)
Here’s when the stress test is not needed:If you’re switching to a new lender, you actually won’t need to pass the test if you’re doing a straight switch – moving to a new lender with the same amortization and loan amount. This was recently mandated in 2024.
You also don’t need to pass the stress test if you are renewing your existing mortgage with your current lender.
How does the Mortgage Stress Test work?
The mortgage stress test requires you to qualify for a mortgage using the “minimum qualifying rate”. That means you have to show your lender that you can afford payments with an interest rate equal to the higher of:
- 5.25% or
- The mortgage rate you’ve been offered, plus 2%
For instance, say that you’ve been offered a rate of 6%. For the mortgage stress test, your lender would consider your application as if your rate was 8%. They arrive at that number by adding 2% to your offered interest rate. And since that number is higher than 5.25%, then 8% will be your mortgage stress test number.
In this case, you would need to show that you can afford to make your monthly mortgage payments even if your interest rate was 8%.
On the other hand – if your rate is 2%, then your lender would use 5.25% as the interest rate for the mortgage stress test. That’s because 2% + 2% = 4%, which is lower than 5.25%.
The qualifying rate is reevaluated each year to make sure it’s still appropriate for the current lending environment.
How does the mortgage stress test impact how much you can borrow?
Say you are looking at buying a $726,000 house with a $150,000 down payment at 2.30%. Your monthly mortgage payments for a 25-year amortization would be $2,523. But using the 5.25% fixed rate, the stressed monthly payment would be $3,432.
Here’s another example: let’s say you would like to purchase a home for $850,000 with a $200,000 down payment at 4.49%. Monthly mortgage payments for a 25-year amortization would be $3,594. If you use the stressed tested rate, that will bring you to 6.49% (4.49% + 2%, which is higher than 5.25%) and your monthly payments will be $4,350. That means you’d need to show your lender that you could afford that higher payment amount.
If you can’t, you might have to reevaluate your homebuying strategy – like increasing your down payment or revisiting your budget (keep reading for more tips).
Beyond the mortgage stress test, there are other factors that lenders will consider when determining a borrower’s ability to repay debt and how much you can borrow. These include:
- Gross debt service ratio (GDS): This is the ratio of the essential payments you must make for your home (including your mortgage payment) to your total income. Typically, your GDS ratio shouldn’t exceed 39% in order to qualify for a mortgage.
- Total debt service ratio (TDS): This is the ratio of all of your household debts (including your mortgage payment) to your total income. Lenders generally look for a number under 44% for your TDS.
If your GDS and TDS ratios are on the slightly higher end, you may still qualify for a mortgage – but keep in mind that you might be increasing the risk of taking on more debt than you can afford.
What happens if you don’t pass the Mortgage Stress Test?
Say you can’t pass the mortgage stress test – what happens next? First, don’t panic. If you don’t pass right now, it might be time to regroup and reassess your homebuying strategy. There are a few ways you can increase your chances and make it easier to qualify for a mortgage.
Here are a few tactics to help you pass the mortgage stress test:
- Increasing your down payment: a higher down payment means lower monthly payments, making it easier to prove you can pay them each month.
- Reducing your budget: you may need to lower your budget, reducing the amount you’d need to borrow and your regular payment amount.
- Improving your credit score: a higher credit score can help reduce your mortgage rate, making it easier to pass the stress test.
- Paying down existing debt: paying off existing debt, like credit cards and loans, is a great way to potentially boost your credit score and lower your interest rate
- Explore ways to increase your income: a higher monthly income will help show lenders that you could afford to make your mortgage payments, even with a higher rate.
The bottom line
The Canadian mortgage stress test will have a direct impact on how much you can borrow for your home, so it’s important to understand all the details. At the end of the day, the test is designed to protect homebuyers from taking on too much debt and ensure your payments remain affordable – both today and in the future.
If you’re worried about passing the mortgage stress test, there are steps you can take to help. A higher down payment, a solid credit score, and less debt are all steps that will all boost your chance at passing the test and qualifying for the mortgage amount you need.
If you want to run your own mortgage stress test, our mortgage affordability calculator can help estimate what your payments may be and get you ready for the real deal. If you want to learn more, a mortgage specialist can help with the specifics of your unique situation.
Mortgage stress test FAQs
You won’t need to pass the mortgage stress test if you’re switching to a new lender and keeping the same amortization and loan amount, or if you’re renewing your existing mortgage with your current lender.
There have been a few key updates since the mortgage stress test was first introduced.
As of 2024, a mortgage stress test is no longer required if you are moving to a new lender with the same amortization and loan amount (known as a “straight switch”).
In 2021, the new mortgage qualifying rate of 5.25% was introduced for all uninsured and insured mortgage applications.
The current stress test rate is either 5.25% or your current rate plus 2% (whichever is higher).
Helpful tools
Related articles
What is a down payment?
Mortgage Pre-Approval vs. Pre-Qualification
