What Is Canada’s Stress Test?

With sky-high interest rates and properties that seem to be getting increasingly more expensive, now more than ever it has become important to understand how much of a loan amount you qualify for. Canada’s stress test is one of the key factors that indicates a clients maximum purchase price. 

The Canadian mortgage stress test is a financial regulation that was introduced by the Office of the Superintendent of Financial Institutions (OSFI) in 2018. Its purpose is to ensure that homebuyers can still afford their mortgage payments even if interest rates rise. This means that borrowers must qualify for a higher interest rate than the one they actually receive, as a way of ensuring they can still make their mortgage payments if rates rise in the future. 

Under the stress test, all mortgage applicants must prove that they can afford mortgage payments at the higher of two rates: the contracted rate you would receive from a lender plus 2%, or the Bank of Canada’s five-year benchmark rate (currently 5.25%, as of April 2023). The stress test applies to all federally regulated financial institutions in Canada, including banks and credit unions. It applies to new mortgage applications and mortgage renewals with a new lender, but not to mortgage renewals with the same lender. 

The stress test was designed to ensure that borrowers are not taking on more debt than they can afford, and to promote financial stability in the housing market. As we saw during and after COVID, the Bank of Canada increased rates to help combat high inflation. The stress test proved its worth by ensuring Canadians and the economy could weather the storm of higher rates and ensured continued financial economic stability. 

Contact us to see how much you are qualified for based on the mortgage stress test. We also work with non-stress test lenders to help Canadians increase their purchasing power and the amount they are able to borrow.