How does the mortgage stress test work in Ontario?
The mortgage stress test is a federal rule set by OSFI that requires lenders to qualify you at a rate higher than your actual contract rate. This is designed to ensure you could still afford payments if interest rates rise.
For mortgages at federally regulated lenders, you must qualify at the higher of the Bank of Canada's qualifying rate or your contract rate plus two percentage points. This means if your lender offers you 5%, your qualification is tested at 7%. As a result, you may qualify for less than you expect even with a solid income.
The stress test applies to all federally regulated lenders — major banks, federal credit unions — regardless of your down payment size. Some provincially regulated lenders and private lenders are not subject to the same rules, but they often carry higher rates or fees that offset any easier qualification. Speak with a mortgage broker to understand what product fits your situation and how the stress test affects your maximum purchase price.
Key takeaways
- You must qualify at your contract rate plus 2%, not the rate you actually pay.
- The stress test reduces how much you can borrow compared to your contract rate alone.
- It applies at federally regulated lenders; provincial and private lenders have separate rules.
- A mortgage broker can help you understand which options fit your budget.