Mortgage Stress Test
Definition
The stress test is a federal qualifying rule requiring you to prove you could still afford your mortgage at a rate higher than the one you were offered.
How it works
You must qualify at the greater of 5.25% or your contract rate plus 2%. If you are offered 4.5%, you must show you could carry payments calculated at 6.5%, even though you would actually pay 4.5%.
The effect is a smaller maximum mortgage. The test reduces borrowing power by roughly 20% compared with qualifying at the contract rate, which is why the amount a lender approves is often lower than buyers expect.
The rule applies to federally regulated lenders for purchases, refinances, and lender switches. Some provincially regulated credit unions apply their own standards, and alternative lenders may qualify differently — which is one reason a broker can find room a single bank cannot.
Quick facts
- Qualify at the greater of 5.25% or your rate plus 2%.
- Cuts maximum borrowing power by roughly 20%.
- Applies to purchases, refinances, and switches at federally regulated lenders.
Put this into practice
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