A procedure used by lenders to determine if a borrower can afford their mortgage payments under adverse circumstances, such as soaring interest rates or loss of income.
Borrowers at federally regulated lenders must prove they can afford a payment based on a rate that is the greater of:
- The contract rate plus 2%-points, or
- 5.25%
Many provincially regulated lenders don't follow federal guidelines and have more lenient stress tests. Some allow borrowers to qualify simply by proving they can afford payments at their contract rate.
Exceptions to the stress test exist for default-insured, insurable and uninsured borrowers switching lenders at maturity with no change in the loan amount or amortization. Due to regulatory changes in 2023-24, many lenders allow such switches to qualify at the borrower's contract rate. However, some lenders still impose the full stress test in these situations.