Understanding The Mortgage Stress Test

The stress test is a stricter loan qualification process that came into effect on January 1st, 2018 for federally regulated mortgages with all-in rates of 5.25% or higher. The new rules apply to all federally regulated financial institutions and aim to control speculation and protect homebuyers from taking on more debt than they can handle under extreme market conditions. Borrowers must qualify for an uninsured mortgage at either the Bank of Canada's qualifying rate or their contractual mortgage rate +2%. This is to mitigate risk and prevent widespread foreclosures, and applies to mortgages indirectly backed by the federal government. Some smaller banks with less than 10 branches are exempt from the stress test.