In 2018, the stress test was expanded to include buyers with more than a 20% down payment (those with uninsured mortgages). Since then, all Canadian home buyers applying through a federally regulated lender—as well as those refinancing their current mortgage—have been required to pass the test.
Has the stress test changed over the years?
Yes. The stress test has evolved in a couple of ways, including changes to the qualifying rate itself, and how the rate is applied.
Until June 2021, the stress test rate was set at either 2% above the contract rate that buyers negotiated with their lender, or at the posted Bank of Canada (BoC) five-year rate, whichever was higher. However, when the BoC slashed rates at the onset of the COVID-19 pandemic, there were concerns that its five-year benchmark rate was too low to adequately protect borrowers from defaulting on their mortgages in the future.
So, the Office of the Superintendent of Financial Institutions (OSFI), a federal government agency that acts as Canada’s banking watchdog, decided to decouple the minimum qualifying stress test rate from the central bank’s rates, and instead use a set floor rate that is reviewed annually.
Another change has to do with mortgage renewals. Previously, if borrowers wanted to move their mortgage to a different federally regulated lender at renewal, they needed to “pass” the stress test again as a new applicant. In late 2023, however, the federal government eliminated that requirement on insured or high-ratio mortgages, as part of the Canadian Mortgage Charter. And as of Nov. 21, 2024, borrowers with uninsured mortgages will also be able to switch lenders at renewal and qualify based on market interest rates, rather than the stress tested rate.
“This is a very good thing,” says Crawford. “Borrowers will be able to qualify at the contract rate, which means they can shop around at renewal instead of just accepting whatever their current lender is offering.”
It’s important to note, however, that borrowers who are refinancing their mortgage—meaning, they want to change the terms of their mortgage contract, say, to extend the amortization period or to borrow extra money against the home’s equity—must pass the stress test again with either their current lender or a new one.
What does the stress test mean for borrowers?
The stress test reduces the size of mortgage that buyers can qualify for, says Crawford. So, unless you are able to come up with a bigger down payment to make up the difference, the test also lowers your maximum purchase price.
