The mortgage stress test is the single biggest factor limiting how much Canadians can borrow. Introduced by the Office of the Superintendent of Financial Institutions (OSFI) in 2018 and refined since, it is designed to ensure borrowers can handle higher interest rates in the future. But for many Calgary buyers, it feels like an invisible wall between them and the home they want.
Understanding exactly how it works — and what you can do about it — puts you in a much stronger position.
What Is the Mortgage Stress Test?
The stress test is a qualification rule that requires all mortgage borrowers in Canada to prove they can afford payments at a rate higher than what they will actually pay. Regardless of whether you are putting down 5% or 50%, and regardless of whether you choose a fixed or variable rate, you must qualify at the stress test rate.
The Qualifying Rate Formula
The stress test qualifying rate is the higher of:
- Your contracted mortgage rate plus 2%, or
- 5.25% (the Bank of Canada's qualifying rate floor)
Example 1: If your lender offers you a rate of 4.79%, your qualifying rate is 4.79% + 2% = 6.79%. Since 6.79% is higher than 5.25%, you qualify at 6.79%.
Example 2: If your lender offers you a rate of 2.99%, your qualifying rate would be 2.99% + 2% = 4.99%. Since 4.99% is lower than 5.25%, you qualify at 5.25%.
In the current rate environment, where most contracted rates are above 3.25%, the "contract rate plus 2%" calculation is almost always the binding constraint.
Who Does the Stress Test Apply To?
The stress test applies to virtually every mortgage borrower in Canada:
- New purchases — whether insured (less than 20% down) or uninsured (20% or more down)
- Mortgage renewals when switching lenders — if you move your mortgage to a new lender at renewal, the stress test applies
- Refinances — any time you increase your mortgage amount or change terms beyond a simple renewal
The One Exception
If you renew with your existing lender, you are not required to re-qualify under the stress test. This is why some borrowers feel stuck with their current lender even when better rates are available elsewhere — they may not qualify at the stress-tested rate required to switch.
However, many borrowers who think they cannot switch actually can. Income growth, debt reduction, or property appreciation since their original purchase may have improved their qualification significantly. It is always worth checking.
How the Stress Test Impacts Your Purchasing Power
The gap between what you can afford at your actual rate and what you qualify for under the stress test is substantial.
Real Numbers for Calgary Buyers
Consider a household with a $120,000 combined income, no other debts, and a 5% down payment:
- At a 4.79% actual rate: You could afford a home worth approximately $620,000
- Under the stress test at 6.79%: You qualify for approximately $500,000
That is a $120,000 reduction in purchasing power — roughly 20%. For a first-time buyer in Calgary, that is the difference between a detached home in an established neighborhood and a condo or townhouse on the outskirts.
Impact at Different Price Points
| Actual Rate | Stress Test Rate | Purchasing Power Reduction |
|---|---|---|
| 4.29% | 6.29% | ~19% |
| 4.79% | 6.79% | ~21% |
| 5.29% | 7.29% | ~22% |
| 5.79% | 7.79% | ~24% |
The higher the actual rate, the greater the stress test impact, because the 2% buffer pushes you further into expensive territory.
Why the Stress Test Exists
It is easy to resent the stress test when it prevents you from buying the home you want. But it exists for a legitimate reason: to protect borrowers and the financial system from interest rate risk.
Canada went through a prolonged period of historically low interest rates from 2009 to 2022. During that time, many Canadians stretched their budgets to buy at ultra-low rates. When rates rose rapidly in 2022 and 2023, borrowers who had qualified at rock-bottom rates faced payment increases of 30% to 50% at renewal.
The stress test ensures that new borrowers have built-in breathing room. If you qualify at 6.79% but are actually paying 4.79%, you have a significant buffer before your payments become unaffordable.
Strategies to Qualify for More Under the Stress Test
While you cannot avoid the stress test, there are legitimate strategies to improve your qualification.
1. Reduce Existing Debts
Every dollar of monthly debt payments reduces your borrowing capacity. Paying off a car loan or credit card balance before applying can increase your purchasing power by $50,000 to $100,000 or more.
Priority order for debt elimination:
- Credit cards with minimum payments (highest impact per dollar)
- Car loans with large monthly payments
- Student loans
- Lines of credit
2. Increase Your Down Payment
A larger down payment means a smaller mortgage, which means lower monthly payments at the stress-tested rate. Going from 5% to 10% down on a $500,000 home reduces your mortgage by $25,000 and your stress-tested payment by roughly $170/month.
If you can reach 20% down, you eliminate the mortgage insurance premium entirely, which further reduces your monthly carrying cost.
3. Use the 30-Year Amortization
First-time buyers purchasing new builds now have access to 30-year amortizations on insured mortgages. This reduces your monthly payment compared to a 25-year amortization, improving your debt service ratios and allowing you to qualify for a higher purchase price.
On a $450,000 mortgage at a 6.79% stress-test rate:
- 25-year amortization: $3,105/month
- 30-year amortization: $2,923/month
That $182/month difference translates to roughly $30,000 in additional purchasing power.
4. Add a Co-Borrower
Adding a spouse, partner, or family member to your mortgage application includes their income in the qualification. Two incomes of $60,000 each qualify for significantly more than a single income of $60,000.
Even if the co-borrower contributes modestly to the household income, it can push you past the qualification threshold for the property you want.
5. Choose a Lower Rate
The stress test is calculated from your contracted rate. A lower contracted rate means a lower stress-test qualifying rate. The difference between qualifying at 6.49% (4.49% + 2%) and 6.99% (4.99% + 2%) can be worth $20,000 to $30,000 in purchasing power.
This is where having access to 60+ lenders through a broker — rather than being limited to one bank's posted rates — directly translates into more home.
6. Explore Alternative Income Sources
Do you have a side gig, rental income from a basement suite, or investment dividends? Additional income sources that are provable and consistent can be included in your mortgage application, improving your qualification.
For basement suite income, some lenders will count a portion of the expected rental income even if the suite is not yet rented, provided the property is suitable for a legal secondary suite.
The Stress Test and Variable Rate Mortgages
One common misconception is that choosing a variable rate helps you avoid or reduce the stress test. It does not. Whether you choose fixed or variable, you qualify at the stress-test rate.
However, choosing a variable rate can be strategically advantageous for other reasons — primarily the lower penalties if you need to break your mortgage early (three months' interest vs. the potentially massive IRD penalty on fixed-rate mortgages).
What Could Change?
There has been ongoing political and industry discussion about modifying the stress test. Potential changes that have been debated include:
- Reducing the 2% buffer to 1% or 1.5%
- Eliminating the stress test for renewals when switching lenders
- Removing the stress test for borrowers with 20% or more down
As of early 2025, no changes have been confirmed, but the regulatory landscape can shift. Working with a broker who stays current on policy changes ensures you are always using the most favorable rules available.
The Bottom Line
The stress test is a reality of Canadian mortgage lending that is not going away anytime soon. Rather than fighting it, the smartest approach is to understand it and work within its constraints strategically.
Reduce your debts, increase your down payment, explore all income sources, and work with a broker who can find you the lowest possible rate to minimize the stress test's impact. In Calgary, where housing is still more affordable than most major Canadian cities, these strategies can bridge the gap between what the stress test says you can afford and the home you actually want.
