Mortgage stress test in Canada: What it is, how it works
Alyssa Furtado
This piece was originally published on June 1, 2021, and was updated on August 11, 2025.
Buying a home in 2025 still comes with a big question: “Can I really afford this if rates rise again?” That’s exactly what Canada’s mortgage stress test is designed to answer. This built-in reality check helps make sure you could still afford your mortgage if rates rise, even if you’ve locked in a lower one today. But how does the test work, when are you exempt, and what if you don’t pass? Here’s everything you need to know.
What is a mortgage stress test in Canada?
A mortgage stress test is a way of determining exactly how much mortgage you can afford, not just based on today’s mortgage rates, but under tougher financial circumstances. If your income was reduced or you lost your job, could you still afford to make mortgage payments? What if interest rates spike or you need to refinance your home?
This kind of rainy-day planning has become especially important over the last few years. Between March 2022 and July 2023, the Bank of Canada hiked interest rates at record speed, taking its Overnight Lending Rate from 0.25% all the way to 5%. That made mortgages more expensive, leaving some borrowers stretched thin.
As of mid-2025, rates have eased comparatively, with the overnight rate now at 2.75%. But the stress test remains in place to make sure borrowers aren’t overextending themselves as they return to the market. It’s a way for lenders (and you) to confirm that your mortgage would still be manageable if things changed financially, even in a lower-rate environment.
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How does the stress test work?
When you apply for a mortgage (including joint mortgages), your lender will test whether you could still afford your payments if your rate were higher than what you're actually being offered. This is where the “stress test rate” comes in. It’s a requirement under OSFI’s Guideline B-20, and it applies to both high-ratio (less than 20% down) and low-ratio (20% or more down) mortgages from federally regulated financial institutions (FRFIs).
You're approved based on the higher of:
- Your contracted mortgage rate + 2%, or
- The minimum qualifying rate set by OSFI (currently at 5.25%)
Whichever of those two rates is higher becomes your mortgage stress test in Canada.
Right now, because mortgage rates have been elevated since 2022, most borrowers are stress tested at their rate plus 2%, and the 5.25% threshold has been obsolete. For example, if you're offered a 4.04% fixed rate, your lender will check that you can still afford payments at 6.04%.
That means your income has to be high enough and your debt low enough to qualify under this higher rate. In most cases, that reduces the total mortgage amount you’re allowed to borrow.
Who needs to take the mortgage stress test?
You’ll be subject to the stress test if you are:
- Buying a home with a mortgage from a federally regulated lender (e.g., banks and federal credit unions)
- Refinancing your current mortgage to borrow more or change your amortization
- Taking out a new HELOC or reverse mortgage
You might avoid the stress test if you work with a provincially regulated lender, like certain credit unions, which aren’t bound by OSFI’s B-20 rules.
Does the stress test apply to mortgage renewals?
Not always. As of November 21, 2024, both insured and uninsured borrowers are exempt from the stress test when switching to a new lender at renewal — as long as it's a straight switch.
That means:
- Your mortgage amount stays the same, and
- Your amortization period doesn’t change
- The mortgage originally started at a federally regulated financial institution
If either of those factors changes, you'll be treated as a new borrower, and the stress test will apply.
Do all banks apply the stress test?
Most do, but not all. Federally regulated lenders (like Canada’s big banks, trust companies, and federal credit unions) are required to apply the mortgage stress test under OSFI’s Guideline B-20.
However, not all lenders fall under OSFI’s rules. Some provincially regulated credit unions and alternative lenders aren’t bound by the same guidelines. These lenders may choose to apply their own criteria, which could be more flexible, especially for borrowers with strong financials who don’t qualify at a big bank.
What if I fail the mortgage stress test?
If your income is too low to carry your mortgage payments at the higher stress test rate, or you are unable to prove you have a consistent source of income, you can fail the mortgage stress test, and your lender will refuse to provide you with the funds you need for your home purchase. In the event this happens, borrowers have a few options:
- Reduce the value of home purchase: Finding a home with a lower purchase price will result in a smaller overall mortgage and lower mortgage payments, which may be better within the borrowers’ ability to pay.
- Consider an alternative or B mortgage lender: These lenders are able to modify other elements of the mortgage, such as the total amortization length, to reduce the size of monthly payments. However, borrowers should be aware that these mortgage products come with higher interest rates than those offered by A -level lenders.
- Add a co-signer to the mortgage: A co-signer with strong income and credit can help you qualify, since their financial profile is added to your application.
- Work with a mortgage broker: A broker can shop your application around and may help you find a lender or solution that fits your situation better.
How the mortgage stress test affects affordability
Let’s say you’re offered a 5-year variable mortgage rate of 3.95%. To pass the stress test, your lender must check whether you could still afford your payments if your rate were 5.95% — that’s your contract rate plus 2%.
Now let’s look at how this affects your purchasing power.
Suppose you:
- Have an income of $100,000
- Make a $25,000 down payment
- Choose a 25-year amortization
At your actual 3.95% rate, you might qualify for a home priced around $467,000. But under the 5.95% stress test rate, your maximum home price drops to around $433,000. That’s a $34,000 reduction in purchasing power, even though your real mortgage rate hasn’t changed.
You can try it yourself using our mortgage affordability calculator.
How long does it take to do the mortgage stress test?
There’s no separate appointment or paperwork for the mortgage stress test — it’s built right into your mortgage application. When you apply with a lender or broker, they’ll automatically run the numbers to check if you qualify at the higher stress test rate. It’s an instant calculation based on your income, debt, and the mortgage amount you’re applying for.
The bottom line
It’s important to keep up to date on changes to Canadian mortgage regulations, as they can directly impact your mortgage. Beyond that, the best thing you can do to increase the amount you can borrow is to earn more money and save more for a down payment.
It also doesn’t hurt to ask a mortgage broker for help when stress testing a mortgage before you buy. In addition to helping you find out what your ideal debt service ratios and maximum interest rate are, they can keep you up to date on changes to lending policies that can affect how much you can borrow.