The Mortgage Stress Test Explained: How to Maximize Your Buying Power

Canada's mortgage stress test is one of the biggest factors determining how much you can borrow. Understanding how it works—and strategies to maximize your qualification—can mean the difference between getting your dream home or settling for less.

What Is the Stress Test?

The stress test requires you to qualify at a rate higher than your actual mortgage rate. This ensures you can still afford payments if rates rise.

The qualifying rate is the higher of:

• Your contracted rate + 2%, OR
• The Bank of Canada's benchmark rate (currently 5.25%)

Why Does It Exist?

The stress test was introduced to:

• Prevent borrowers from overextending
• Protect against rate increases
• Cool an overheated housing market
• Reduce default risk for lenders

How It Affects Your Buying Power

Example:

• Household income: $100,000
• Actual mortgage rate: 5%
• Qualifying rate: 7% (5% + 2%)

You must prove you can afford payments at 7%, even though you'll only pay 5%.

The impact:
Without the stress test, this household might qualify for ~$550,000. With the stress test, they qualify for ~$440,000.

Step-by-Step Qualification Math

Let's walk through a real example:

Given:

• Gross annual income: $120,000 ($10,000/month)
• Other debts: $400/month (car) + $150/month (student loan)
• Property taxes: $400/month estimated
• Heating: $125/month estimated
• Condo fees: $500/month ($250 counted for qualification)
• Qualifying rate: 6.75% (for this example)

GDS Calculation (max 32%):

• Max housing costs = $10,000 × 32% = $3,200/month
• Less taxes, heat, condo = $3,200 - $400 - $125 - $250 = $2,425/month
• At 6.75% over 25 years = ~$340,000 mortgage

TDS Calculation (max 44%):

• Max total debt = $10,000 × 44% = $4,400/month
• Less non-housing debt = $4,400 - $400 - $150 = $3,850/month
• Less housing costs = $3,850 - $400 - $125 - $250 = $3,075/month
• At 6.75% over 25 years = ~$440,000 mortgage

Your maximum: $440,000 (the lower calculation)

FAQ

Q: Does the stress test apply if I put 20% down?
A: Yes. You still must pass, though you avoid CMHC insurance.

Q: What if I don't pass the stress test?
A: Options include reducing your budget, increasing down payment, paying down debt, or exploring alternative lenders.

Q: Do renewals require the stress test?
A: Not if you stay with your current lender. Switching triggers a new application.

Q: Will the stress test ever go away?
A: Unlikely. OSFI views it as permanent prudential policy.

What's Next

Understanding the stress test is empowering. Get pre-approved to see your actual numbers and work with our team to maximize your qualification.