The quick answer
The mortgage stress test in Canada means a federally regulated lender such as a bank has to qualify you at the higher of 5.25% or your contract rate plus 2%. The rule applies to insured and uninsured mortgages. Your housing costs at that qualifying rate generally cannot exceed 39% of your gross income and your total debts cannot exceed 44%. You still pay your actual contract rate once the mortgage is in place.
The short answer
The mortgage stress test in Canada is the rule that decides how much a bank will lend you. To approve your mortgage, a federally regulated lender has to check that you could still make your payments at a higher rate than the one you will actually pay.
That qualifying rate is the higher of two numbers: 5.25% or your contract rate plus 2%. The Office of the Superintendent of Financial Institutions (OSFI), which regulates banks, sets it for uninsured mortgages and the Financial Consumer Agency of Canada (FCAC) says the same test applies to insured mortgages.
For a first-time buyer in Markham, the stress test usually matters more than the rate you negotiate. It sets the ceiling on your pre-approval, which sets the price range you can shop in. This post explains how the test works as the federal regulators publish it. It is not mortgage advice, so confirm your own numbers with a lender or mortgage professional.
How the qualifying rate is calculated
OSFI’s page describes the minimum qualifying rate in two parts:
- The buffer, currently 2%, added to your contract rate.
- The floor, currently 5.25%.
Whichever is higher is the rate the lender uses. OSFI says it reviews both the floor and the buffer at least annually, so check the OSFI page for the current figures when you apply.
| Contract rate you are offered | Contract rate plus 2% | Qualifying rate used |
|---|---|---|
| 3.00% | 5.00% | 5.25% (the floor applies) |
| 3.25% | 5.25% | 5.25% |
| 4.00% | 6.00% | 6.00% |
| 5.00% | 7.00% | 7.00% |
These contract rates are illustrations, not quotes. The pattern is what matters: when rates are low the 5.25% floor does the work and when rates are higher the 2% buffer does.
The two ratios your lender checks
The qualifying rate on its own does not approve or decline anyone. The lender plugs it into two ratios that FCAC describes on its guide to preparing for a mortgage.
Gross debt service (GDS). Your total monthly housing costs should not be more than 39% of your gross household income. Housing costs include your mortgage payment, property taxes, heating costs and 50% of your condo fees if you are buying a condo.
Total debt service (TDS). Your total debt load should not be more than 44% of your gross income. That is your housing costs plus your other debts, such as credit cards, car loans, lines of credit, student loans and child or spousal support.
Under the stress test, the mortgage payment in both ratios is the payment at the qualifying rate. That is why a car loan or a large credit card balance can shrink a pre-approval by more than people expect.
Markham property taxes feed straight into the GDS ratio. Our post on how property tax works on a Markham home explains how the bill is calculated so you can estimate it for the homes you are considering.
A worked example with round numbers
This is an illustration, not a real client and not a mortgage quote. Say a buyer needs a $600,000 mortgage over 25 years and is offered a 4.00% contract rate. The qualifying rate is 6.00%, because 4.00% plus 2% is higher than 5.25%.
| At the 4.00% contract rate | At the 6.00% qualifying rate | |
|---|---|---|
| Monthly mortgage payment | $3,156 | $3,839 |
| Property tax, illustrative | $500 | $500 |
| Heating, illustrative | $150 | $150 |
| Monthly housing costs | $3,806 | $4,489 |
| Gross annual income for a 39% GDS | $117,108 | $138,123 |
The payments are our own calculation and a lender’s figures will differ slightly. The income line is the monthly housing costs divided by 0.39, multiplied by 12.
The buyer would pay about $3,156 a month once the mortgage is in place. To be approved, though, they need an income that supports $3,839, which in this example means about $21,000 more in gross annual income than the contract rate alone would suggest. Any other debts would then be checked against the 44% TDS limit on top of that.
Ways buyers work within the stress test
You cannot opt out of the test with a federally regulated lender, but several choices change the numbers it runs on.
- A larger down payment. Borrowing less lowers the qualifying payment. The FHSA and the RRSP Home Buyers’ Plan can both go toward a first home.
- Paying down other debt first. Clearing a car loan or card balance before you apply frees room under the 44% TDS limit.
- A longer amortization. Finance Canada made 30 year amortizations on insured mortgages available to all first-time home buyers and all buyers of new builds from December 15, 2024. In the example above, the same $600,000 at the 6.00% qualifying rate over 30 years works out to about $3,569 a month instead of $3,839. You pay more interest over the life of the mortgage, so weigh that trade-off with your lender.
- Adding a co-borrower. A second income counts toward both ratios. So do their debts.
- Choosing a lower carrying cost home. A freehold townhouse with no condo fee and a condo with a monthly fee can qualify very differently at the same price, because half the condo fee counts in GDS.
Insured or uninsured: what changes
FCAC says that if your down payment is less than 20% of the price, you will typically need mortgage loan insurance. That is an insured mortgage. With 20% or more down it is usually uninsured, though a lender can still require insurance, for example if you are self-employed or have a poor credit history.
The stress test applies either way. What changes is the down payment you need and the price range that can be insured. FCAC’s minimum down payment rules are 5% of the first $500,000, 10% of the portion from $500,000 to $1.5 million and 20% at $1.5 million or more. Finance Canada raised the price cap for insured mortgages from $1 million to $1.5 million on December 15, 2024.
Renewals, switches and refinancing
The stress test is mainly a hurdle at purchase, but it comes back in some situations later.
- Switching lenders at renewal. OSFI does not expect a lender to apply the qualifying rate when an uninsured mortgage switches from one federally regulated lender to another with no increase to the amortization or the loan amount. Finance Canada says insured mortgage holders can also switch lenders at renewal without another stress test.
- Refinancing or a home equity line of credit. FCAC says you will need to pass the stress test if you refinance your home or take out a home equity line of credit.
What to do before you start viewing homes
- Get a pre-approval. Ask the lender which qualifying rate it used and what your GDS and TDS ratios came to.
- Estimate the property tax, heating and any condo fee for the kind of home you want and check that your approval covers them.
- Budget separately for closing costs when buying a home in Markham, which the mortgage does not cover.
- Ask whether a 30 year amortization is available to you and what it would cost in total interest.
- Re-check your approval before you make an offer if rates or your debts have changed.
Our guide for first time home buyers in Markham walks through how we build a search around a real budget. Our buyer page explains how we handle offers. If you want to talk through what your pre-approval means for the Markham homes you are looking at, contact us.
Common questions
What is the mortgage stress test rate in Canada right now?
OSFI sets the minimum qualifying rate for uninsured mortgages as the greater of the contract rate plus 2% or 5.25%. The Financial Consumer Agency of Canada says banks use the same test for insured mortgages.
Do I pay the stress test rate on my mortgage?
No. The qualifying rate is only used to check whether you could afford your payments if rates were higher. Your payments are based on the contract rate you agree with your lender.
Does the stress test apply if I put 20% down?
Yes. The stress test applies to insured mortgages, which usually have less than 20% down. It also applies to uninsured mortgages. A bigger down payment lowers the amount you borrow, which makes the test easier to pass.
Do I have to pass the stress test again when my mortgage renews?
Not for a straight switch. OSFI does not expect a lender to apply the qualifying rate when an uninsured mortgage moves to another federally regulated lender with no increase to the loan amount or amortization. Finance Canada says insured mortgage holders can also switch lenders at renewal without another stress test.
Do credit unions have to use the stress test?
The rules on this page apply to federally regulated lenders such as banks. The Financial Consumer Agency of Canada says lenders that are not federally regulated may also ask you to pass a stress test, so ask any lender how it qualifies you.
Can a 30 year amortization help me pass the stress test?
It can, because a longer amortization lowers the monthly payment used in the test. Since December 15, 2024, 30 year amortizations on insured mortgages have been available to all first-time home buyers and to all buyers of new builds.
Keep exploring
- First-Time Buyers A real budget, a realistic neighbourhood list and no surprises at closing.
Sources
- OSFI, Minimum qualifying rate for uninsured mortgages
- Financial Consumer Agency of Canada, Preparing to get a mortgage
- Financial Consumer Agency of Canada, Saving for a down payment
- Department of Finance Canada, Boldest mortgage reforms in decades come into force today
- Department of Finance Canada, Government announces boldest mortgage reforms in decades
Figures and rules were checked against these sources on the date this post was published or last updated.
Not advice. This post is general information only. It is not legal, tax, mortgage or investment advice. Rules and figures change, so confirm the details for your own situation with a qualified professional before acting.
Market data. Any prices quoted are general information for the period stated. They are not an appraisal or an opinion of value for any specific property.