A Complete Guide to the Mortgage Stress Test

Whether you’re a first-time homebuyer or a seasoned property owner, if you want to get a mortgage you may have to pass the mortgage stress test.

Here is everything you need to know about passing this crucial benchmark!

The Mortgage Stress Test Explained

Banks and other mortgage providers have their bottom line to consider, so they both need and are mandated to check whether the people they lend to can actually afford their mortgage.

They do this via a stress test, which is really just an exercise in what-ifs.

What if you lose your job? What if interest rates rise? What if you take on more debt? Will you still be able to pay for your mortgage? All of these questions are answered with one simple test – Would you still be able to afford your mortgage payments if your interest rate was set to a higher qualifying rate?

This is the mortgage stress test in a nutshell.

This simple question neatly takes into account your income, your debt and your monthly expenses, in a worst-case scenario.

The qualifying rate used in the calculation is either the Bank of Canada’s rate (set to 5.25% as of June 2021), or your contracted mortgage rate plus 2%. 

House model with percent sign beside it

Rules of the Mortgage Stress Test

Stress tests are a common occurrence in financial planning, and mortgage lenders are duty-bound to follow certain rules when assessing your mortgage eligibility.

So here are the rules for the mortgage stress test:

  • The stress test applies to all mortgages, insured or uninsured.
  • The stress test applies to new mortgages, refinancing, lines of credit on the home, or switching to a new mortgage provider.
  • The qualifying rate used in the stress test calculation must be the higher of either the Bank of Canada qualifying rate at time of mortgage application or the contracted mortgage interest rate plus 2%. 

An example will probably shed the most light on this:

Say the mortgage you are looking at has an interest rate of 1.54%.

The Bank of Canada’s qualifying rate is 5.25%.

So the qualifying rate used for the mortgage stress test is the higher of (1.54% + 2% = 3.54%) and 5.25% – in this case it’s 5.25%.

This means that when applying for a mortgage, the rate used to calculate how much you can afford to borrow is 5.25% – much higher than the rate you’ll actually pay if you qualify.

So, crucially, the amount you can borrow will depend on the test. You don’t so much pass or fail a stress test, as you qualify for more or less than you had hoped.

Comparing Actual and Stress Test Interest Rates

Why Is the Mortgage Stress Test Important

All of this produces one outcome for borrowers: smaller mortgages.

Experts estimate that the Bank of Canada’s rate change from 2020 to 2021 alone (from 4.79% to 5.25%) lowered buyer’s purchasing power by 5%.

The average Canadian household has debt equal to 171% of disposable income, and house prices have risen by 38% in the last year alone.

With soaring house prices, a burgeoning debt crisis, and historically low interest rates, making sure that Canadian consumers could actually afford their ever-larger mortgages became a priority.

Put simply, the mortgage stress test is an effort to mitigate the risks of excessive leverage in our economy.

Frequently Asked Questions

  • Does the stress test apply to insured mortgages?
  • How can you pass the mortgage stress test?
  • By applying for a smaller mortgage; paying down your existing debts; increasing your down payment.

  • Who does the mortgage stress test apply to?
  • Everyone applying for or refinancing a mortgage, as well as those taking out a home line of credit.

  • How can I calculate my mortgage affordability?
  • Try using the CMHC’s handy mortgage affordability calculator, found here.

  • Who sets the benchmark for the mortgage stress test?
  • Canada’s banking regulator, the Office of Superintendent of Financial Institutions (OSFI), and the federal Department of Finance.

  • How can I avoid the mortgage stress test?
  • The mortgage stress test applies to all mortgages taken out at federally regulated banks, so if you get a mortgage from an alternative lender (such as a private lender, or a provincial lender), the stress test regulations do not apply.

  • When was the mortgage stress test introduced?
  • Mortgage stress test regulations have existed in Canada for some time, but only in 2018 did they become relevant to all mortgages, regardless of size, insured status or down payment level.

  • Do I have to retake the mortgage stress test if I change lenders?
  • Yes.

  • What rate is used in the mortgage stress test if I have a variable rate mortgage?
  • he rate used in this instance is the higher of either the Bank of Canada’s qualifying rate, or your variable rate at time of mortgage origination plus 2%.

  • What happens if I fail the mortgage stress test?
  • You can reapply for a lower amount. Failing the mortgage stress test just means that you cannot borrow as much as you originally applied for – but you can probably borrow less. Or you can wait until you have less debt or a higher income, as the test will then have a different result.

  • How often is the mortgage stress test benchmark rate changed?
  • The rate is analyzed annually to ensure it remains appropriate to market conditions.


Amy Orr is an author, freelance writer and editor, specializing in FinTech and Personal Finance. Starting with several prestigious internships in investment banking and asset management, in 2007 she went on to graduate with an MSc in Finance and Investment from the University of Edinburgh Business School.

She has since spent years as both a Portfolio Analyst and as a Financial Researcher/Writer, in both the UK and Canada.

Versed in the intricacies of multiple financial markets, her forte is parsing complex technical concepts into relatable, digestible content for the masses.