What Is the Mortgage Stress Test?
In Canada, most federally regulated lenders must qualify borrowers using a higher benchmark rate rather than the contract rate offered. This is commonly referred to as the mortgage stress test.
The purpose of the stress test is to ensure borrowers could still manage payments if interest rates rise in the future.
How the Stress Test Is Applied
When assessing pre-approval, lenders calculate payments using the greater of the offered mortgage rate plus a specified buffer or the current qualifying benchmark rate. This higher rate reduces the maximum borrowing amount compared to calculations at the contract rate alone.
Why It Impacts Purchasing Power
Because qualification is based on the higher stress-tested rate, the maximum approved purchase price may be lower than buyers initially expect. Even small increases in qualifying rates can significantly affect borrowing capacity.
Stress Test and Pre-Approval
Pre-approvals reflect current stress test rules. If benchmark rates change before a full approval is completed, qualification amounts may adjust accordingly.