What Is Mortgage Stress Test?
The federal rule requiring lenders to qualify borrowers at the greater of their contract rate plus 2% or the 5.25% benchmark, ensuring borrowers can handle rate increases.
Definition
Canada's mortgage stress test (OSFI guideline B-20) requires all federally regulated lenders to qualify borrowers at a rate higher than their actual contract rate. The qualifying rate is the greater of: the contract rate plus 2 percentage points, or 5.25% (whichever is higher). This means if your actual mortgage rate is 5%, you must prove you can afford payments at 7%. The stress test applies to all insured and most uninsured mortgages. It was introduced to ensure Canadians are not overextended if rates rise after they take out a mortgage. The stress test can significantly reduce your maximum qualifying mortgage amount compared to the rate you will actually pay.
Formula
Example
Your bank offers a 5-year fixed rate at 4.89%. Your qualifying rate for the stress test = max(4.89 + 2, 5.25) = 6.89%. Your lender must confirm you can afford the payment at 6.89% before approving the mortgage at 4.89%.