Mortgage Stress Test
Quick Summary
A rule that requires borrowers to qualify at a higher rate than the contract rate.
ELI5 Explanation
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You must prove you can handle payments even if rates rise.
Detailed Explanation
The Canadian mortgage stress test is used by many federally regulated lenders and is influenced by B-20 guidance. Even if you can afford the current payment, you may be required to qualify at a higher benchmark rate, which can reduce the maximum mortgage amount.
Example
A borrower applies for a 5.19% mortgage but must qualify at a higher benchmark rate, lowering their approved loan amount.
Why It Matters
It explains why some borrowers move to alternative or private lenders despite strong equity.