Understanding the Mortgage Stress Test in Canada

If you’re thinking about buying a home in British Columbia—or anywhere in Canada—you’ve probably heard about the mortgage stress test. But what is it, and why does it matter?

The mortgage stress test is a rule introduced by the federal government in 2018 to ensure that borrowers can handle their mortgage payments even if interest rates rise. Essentially, lenders need to check whether you can afford your mortgage at a higher interest rate than the one you’re actually being offered.

Here’s how it works: when you apply for a mortgage, the bank or lender will calculate your monthly payments using either the Bank of Canada’s five-year benchmark rate or your contracted mortgage rate plus 2%, whichever is higher. If your income can cover this “stress-tested” payment, you pass; if not, you may need a larger down payment or a smaller mortgage.

The stress test was introduced to protect both homeowners and the housing market. It helps prevent people from borrowing more than they can safely afford, which reduces the risk of default if interest rates rise or financial situations change. While it can make qualifying for a mortgage more challenging, it’s designed to keep Canadians financially secure in the long run.

For anyone buying a home in BC, understanding the stress test is crucial for planning your budget, saving for a down payment, and knowing how much you can realistically borrow.