Welcome to Your Home Affordability Buffer

Lenders use the federal mortgage stress test to determine if you can handle higher payments if interest rates rise or your income decreases. This test limits how much you can borrow to buy a home, ensuring a margin of financial safety.

Why is the Mortgage Stress Test Important?

The mortgage stress test, set by the Office of the Superintendent of Financial Institutions (OSFI), is designed to prevent the worst stress of all: being unable to afford your mortgage payments after buying a home. By insisting on a financial buffer, it protects both you and the lenders from potential defaults.

What is the Mortgage Stress Test?

The stress test uses a higher rate than your contract rate to evaluate your finances and mortgage amount during the approval process. This ensures you have room to adjust to higher payments if interest rates rise or your income drops when it’s time to renew or refinance.

In the News: On March 21, 2024, Canada’s competition watchdog recommended OSFI drop the stress test for uninsured mortgage switches at renewal. However, changes are unlikely in the near future.

Current Stress Test Rate

As of June 2021, lenders use the higher of either a rate of 5.25% or your actual rate plus 2.0% to qualify your mortgage loan amount. For example, if you secure a rate of 5.64%, you’ll be stress-tested at 7.64%.

When Do You Need to be Stress-Tested?

Regulated lenders apply the mortgage stress test for:

• New home purchases (both variable and fixed rate)
• Refinances
• Renewals (only if switching lenders and the mortgage is uninsured)

Alternative and private lenders may not use the stress test, relying on other factors instead.

How the Stress Test Affects Your Borrowing Capacity

The stress test can limit your home purchase price or require a larger down payment to reduce your mortgage loan amount. For example, with an annual income of $100,000, a 5% down payment, and a 25-year amortization:

• At a contract rate of 4.54% and a previous rate ceiling of 5.25%, you might afford a $475,000 home.
• With a stress-test rate of 6.54%, your approval amount could drop to $430,000.

Factors to Help You Qualify

Certain factors can help you qualify for a lower rate:

• Steady income
• Good credit
• Lower debt service ratios
• Insured mortgages
• Using an expert broker to shop the best rates for you

What If a Bank Declines Your Application?

If your mortgage application doesn’t meet traditional lender requirements, including the stress test, we can tailor a solution for you. Learn more about complex mortgage situations we handle.

Upcoming Changes to the Stress Test?

OSFI reviews mortgage rules annually. Stay updated with our blog on potential changes to mortgage rules.

Preparing for Higher Rates

The mortgage stress test was introduced to prepare home buyers for higher rates. While initially unpopular, it has proven effective in maintaining borrower and lender stability during times of increasing rates. Despite rising mortgage delinquencies, they remain within normal parameters given the current economic climate.

How We Can Help You

• Know the current stress test rate.
• Get pre-approved to understand your budget before shopping for a home.
• Reduce your debt strategically (consult us first to understand the impact on mortgage approval).
• Access first-home down payment assistance.
• Find the best rate and lender for your needs.