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.
As of June 2021, 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.
Canada's banking regulator is expected to update the stress test in 2024.