The mortgage stress test is a rule used by Canadian lenders to ensure borrowers can still afford their mortgage if interest rates rise.
When applying for a mortgage, buyers must qualify at a higher interest rate than the one they will actually pay. This helps confirm that the borrower could still afford the mortgage if rates increase in the future.
As of today, buyers must qualify at the greater of either:
The mortgage rate they are being offered plus 2%, or
The Bank of Canada qualifying rate set for mortgage approvals.
For example, if a lender offers a mortgage rate of 5%, the buyer would need to qualify as if the interest rate were 7%.
This means the lender calculates affordability using the higher rate when reviewing income, debts, and monthly housing costs.
The stress test affects how much buyers can borrow, not the actual interest rate they will pay once the mortgage begins.
The rule applies to most buyers getting mortgages through federally regulated lenders, including major Canadian banks. Buyers with larger down payments or those using alternative lenders may encounter different qualification requirements depending on the lender.
The purpose of the stress test is to reduce financial risk for borrowers and the broader housing market if interest rates rise significantly.
