May 6th, 2024 | Canada

What’s a Mortgage Stress Test

A mortgage stress test is conducted by your mortgage lender to see if you are able to keep up with your mortgage payments should interest rates increase. All federally-regulated lenders are required to conduct a stress test, and the stress test is done when you apply for a new mortgage, switch lenders, or refinance your mortgage.

The mortgage stress test reduces the amount that you are eligible to borrow compared to current rates or may even disqualify you from a mortgage with a bank. Your ability to afford mortgage payments is compared against the qualifying rate.

How is my stress-test mortgage payment calculated?

To pass the stress test, you must still be able to afford your mortgage payments if your interest rate increases to a value called the qualifying rate.

If your mortgage is uninsured (generally, if your down payment is 20% or higher), then the qualifying rate is the higher of

• the benchmark rate of 5.25%, and
• your current or target interest rate plus 2%.

If your mortgage is insured (required if your down payment is below 20%), then the qualifying rate is the higher of

• the benchmark rate of 5.25%, and
• your current or target interest rate plus 2%.