The Mortgage Stress Test for BC Buyers Explained

If you are buying a home in British Columbia, you may hear that you have to "pass the stress test" before a lender will approve you. It can feel like a hidden hurdle, especially when the amount you are approved for is lower than you expected.

This article explains in plain words what the stress test is, what lenders look at, and how it fits with pre-approval and down payment rules. It does not give you a current qualifying rate, because that figure is set federally and can change.

This article covers the law of British Columbia.

What the stress test is

People use "stress test" to describe the check a lender makes of whether you could still afford your mortgage if things were less favourable than they are today. The details of how a lender applies that check depend on the lender and the mortgage, so ask them to explain it in terms of your own numbers.

The qualifying rate comes from the federal banking regulator, OSFI, and it is reviewed on a regular basis. Because it can move, any number you read in an older article or social post may be out of date. Ask your lender or broker what qualifying rate they are using today.

How it changes what you can borrow

The amount you can borrow depends on your own finances and on the lender's review, so it may be lower than a quick payment calculation would suggest. In a high-priced market like much of British Columbia, that difference can matter.

Lenders review your assets, income and debt to estimate the most they might lend and at what rate. Your final amount also depends on the property value and your down payment, and the property must meet the lender's standards.

• Higher income or a co-borrower with income can raise the amount you qualify for.
• Existing debts such as car loans, credit cards and lines of credit reduce it.
• A larger down payment reduces the amount you need to borrow in the first place.
• A longer amortization lowers the payment, which can help. Insured purchase loans are limited to 25 years, with 30 years available through CMHC Home Start, and since December 15, 2024 30-year amortizations are available to all first-time home buyers and all buyers of new builds.

Pre-approval and your borrowing amount

Pre-approval is a way to find out early what a lender might offer. The lender estimates the most you might borrow and the rate, but the process does not guarantee approval. The rate can be locked for 60 to 130 days depending on the lender.

A pre-approved amount is a ceiling, not a commitment, and the lender can still refuse after pre-approval. Terms are set by each lender, so you are not bound to that lender to close, but the lender is not firmly bound to lend.

Lenders typically ask for ID, proof of employment, proof of your down payment and closing costs, and, if you are self-employed, two years of CRA notices of assessment.

Down payments and insured mortgages

Mortgage loan insurance is typically needed if your down payment is less than 20% of the purchase price. A lender may also require insurance even with 20% down, usually if you are self-employed or have a poor credit history. Whether your mortgage is insured can affect which lenders and products are open to you, so ask how the lender's qualifying rules apply to your specific mortgage.

For a home you intend to live in, the minimum down payment is 5% of the purchase price if the price is $500,000 or less, and under CMHC's homeowner rules that 5% tier applies to 1 to 2 unit homes, while 3 to 4 unit homes need 10%. Rental or investment properties are not eligible for CMHC's 5%-down homeowner product, and the maximum price for small rental loans is $1,000,000, so confirm the minimum for a rental purchase with your lender or CMHC. For a price between $500,000 and $1.5 million, it is 5% of the first $500,000 plus 10% of the amount above $500,000. For a price of $1.5 million or more, it is 20% of the whole price. On a $1 million home that works out to $75,000, but only if the lender and insurer accept it.

The insured mortgage price cap rose from $1 million to $1.5 million effective December 15, 2024. Normally the minimum down payment must come from your own funds.

CMHC says mortgage loan insurance protects the lender if the borrower cannot make payments. The lender pays the premium but likely passes the cost to you, and you can pay a lump sum or add it to the mortgage and pay over time. For CMHC homeowner loans, the premium on the total loan amount ranges from 0.60% at up to 65% loan-to-value to 4.00% at 90.01% to 95% loan-to-value, and it is 4.50% in that top band if a non-traditional down payment is used, which CMHC allows for some 1 to 2 unit borrowers with a strong credit history. The premium is a one-time charge that may be added to the insured loan. Ask your lender for a full breakdown early, so you know how any premium affects what you would owe.

What to do next

• Ask your lender or broker for the qualifying rate they use today and the maximum amount that results.
• Gather ID, employment proof, down payment proof and, if self-employed, two years of notices of assessment.
• Ask how long your pre-approved rate is guaranteed, whether you get a lower rate if rates fall, and whether the pre-approval can be extended.
• Pay down or consolidate high-interest debts before applying where that makes sense for you.
• Speak with a lawyer before you remove conditions on a purchase if you are unsure what your financing commits you to.

Frequently asked questions