Mortgage Stress Test
Quick Definition
A Canadian requirement to qualify for a mortgage at a higher rate than the contract rate.
Full Explanation
Canada's mortgage stress test requires all borrowers — regardless of down payment size — to prove they can afford mortgage payments at the higher of the Bank of Canada's benchmark qualifying rate (currently 5.25%) or their actual mortgage rate plus 2.00%. For example, if you get a mortgage at 6%, you must qualify as if paying 8%. The stress test was introduced by OSFI in 2018 to protect the Canadian housing market and prevent over-leveraged borrowers. It effectively reduces the maximum amount most Canadians can borrow by about 20%.
Related Terms
Mortgage
A secured loan used to purchase real estate, with the property as collateral.
CMHC (Canada Mortgage and Housing Corporation)
Federal Crown corporation that provides mortgage default insurance for high-ratio mortgages.
OSFI (Office of the Superintendent of Financial Institutions)
Canada's federal regulator of banks, insurance companies, and mortgage rules.
Interest Rate
The percentage charged on the principal loan balance per period.
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