Understanding Canada’s Mortgage Stress Test (B-20 Rules)

Whether you're a first-time buyer, renewing homeowner, or anyone applying for a mortgage in Canada, the stress test directly affects how much you can borrow—and understanding how it works in plain language can help you plan your budget more effectively.

What Is the Mortgage Stress Test?

The mortgage stress test is a federal requirement introduced by OSFI (Office of the Superintendent of Financial Institutions) under the B-20 guidelines. It requires lenders to qualify borrowers at a higher interest rate than they'll actually pay.

The purpose is simple: ensure borrowers can still afford their mortgage if rates rise.

How the Qualifying Rate Is Calculated

You must qualify at the higher of:

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

Example:

• Offered rate: 4.5%
• Qualifying rate: 6.5% (4.5% + 2%)
• You must prove you can afford payments at 6.5%

How Much Does This Reduce Borrowing Power?

The stress test typically reduces what you can borrow by 15-20% compared to qualifying at the actual rate.

Real-world example:

• Household income: $100,000
• Without stress test: Could qualify for ~$550,000
• With stress test: Qualify for ~$450,000

This means many buyers need to adjust their expectations or increase their down payment.

Does the Stress Test Apply to Everyone?

Yes, it applies to:

• All insured mortgages (less than 20% down)
• Uninsured mortgages from federally regulated lenders
• Most credit unions (voluntarily adopted)

Exceptions:

• Some credit unions don't apply it to uninsured mortgages
• Private lenders typically don't use it
• Renewals with your current lender (no switch)

Strategies to Qualify for More

1. Increase Your Down Payment
A larger down payment reduces the mortgage amount, making it easier to qualify.

2. Extend Your Amortization
A 30-year amortization (if available) lowers monthly payments.

3. Pay Down Other Debts
Reducing car loans or credit card balances improves your debt ratios. Learn more in our guide on improving your credit score for better rates.

4. Add a Co-Borrower
A spouse, partner, or family member's income can help.

5. Consider Alternative Lenders
Some credit unions and private lenders offer more flexibility.

Common Misconceptions

Myth: The stress test is temporary
Reality: It's been in place since 2018 and shows no signs of being removed.

Myth: I pay the higher rate
Reality: You only qualify at the higher rate—your actual payments use the contracted rate.

Myth: Renewals always require re-qualification
Reality: Staying with your current lender typically doesn't trigger a new stress test.

FAQ

Q: Can I avoid the stress test entirely?
A: Only through private lenders or certain credit unions for uninsured mortgages. However, these often come with higher rates.

Q: Does the stress test apply if I put 20% down?
A: Yes, uninsured mortgages at federally regulated lenders still require stress test qualification.

Q: Will the stress test go away if rates drop?
A: Unlikely. OSFI views it as a permanent prudential measure, not tied to rate cycles.

Q: How does the stress test interact with my TDS ratio?
A: Your total debt service ratio is calculated using the stress test rate, which typically pushes it higher. Learn about debt service ratios in our GDS/TDS guide.

Q: I'm self-employed—does the stress test apply?
A: Yes, but income documentation is the bigger challenge. See our self-employed mortgage guide for strategies.

What's Next

Understanding the stress test helps you plan your home purchase budget and make informed decisions about fixed vs variable rates. Ready to see what you qualify for? Start with a pre-approval.