- The qualifying rate: the greater of your contract rate + 2%, or 5.25%. OSFI, the federal banking regulator, reviews it at least once a year.
- Who it applies to: banks and other federally regulated lenders, for both insured mortgages (under 20% down) and uninsured mortgages (20% or more down).
- The debt limits: for insured mortgages, your housing costs (mortgage, property tax, heat and half of any condo fees) generally can't exceed 39% of your gross income, and all your debts together can't exceed 44%. Both are calculated at the qualifying rate, not your actual rate.
What it means in practice. The stress test is why your approval is lower than you might expect from today's rates. It also isn't a bad thing. If rates are higher when your term renews, you've already proven you can handle it.
At renewal. If you switch an insured mortgage to another federally regulated lender at renewal, without borrowing more or extending the amortization, you no longer have to requalify under the stress test. That makes it easier to shop around for a better rate when your term is up.
