Mortgage Stress Test (B-20) in Canada | Complete Guide

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The mortgage stress test, imposed by the Office of the Superintendent of Financial Institutions (OSFI) through Guideline B-20, is a protective mechanism requiring borrowers to qualify at an interest rate higher than their actual mortgage contract rate. Since January 2018, all borrowers — whether their down payment is below or above 20% — must demonstrate their ability to make payments at the higher of: the contract rate plus 2%, or the qualifying rate floor set by the Bank of Canada (currently 5.25%). This test significantly reduces maximum borrowing capacity. For example, a household that could borrow $500,000 at the contract rate might see their capacity reduced to approximately $400,000 after the stress test is applied. In Quebec, AMF-certified mortgage brokers must clearly explain the impact of this test to their clients and help them plan their purchase budget accordingly. Provincially regulated lenders (Desjardins caisses during certain renewals) may have slightly different rules.

The Mortgage Stress Test: OSFI Guideline B-20

The mortgage stress test is one of the most significant regulatory measures affecting Canadians' borrowing capacity. Gradually introduced between 2016 and 2018 by the Office of the Superintendent of Financial Institutions (OSFI), this test ensures that borrowers can withstand an increase in interest rates without facing financial hardship. For Quebec buyers, understanding this mechanism is essential for properly planning their real estate project.

How the Stress Test Works

When you apply for a mortgage, the lender does not simply verify whether you can make payments at the offered contract rate. They must also ensure you can qualify at a higher qualifying rate — the greater of your contract rate plus 2 percentage points, or the qualifying rate floor published by the Bank of Canada. This qualifying rate is used only to déterminé your eligibility. Your actual payments will be calculated at the contract rate negotiated with your lender.

The lender determines the offered contract rate (for example, 4.50% fixed 5-year).
They calculate the qualifying rate: the higher of 4.50% + 2% = 6.50% or the Bank of Canada floor rate (for example, 5.25%).
The qualifying rate used is 6.50% (the higher of the two).
The lender calculates debt service ratios (GDS and TDS) using this 6.50% rate for mortgage payments.
If ratios meet the limits (GDS ≤ 39% and TDS ≤ 44% as a general rule), the loan is approved.

Impact on Borrowing Capacity

The stress test significantly reduces the maximum amount you can borrow. For a Quebec household with a gross income of $100,000 per year and no other debt, the maximum borrowing capacity at a contract rate of 4.50% would be approximately $480,000. However, after applying the test at the 6.50% qualifying rate, this capacity drops to approximately $390,000 — a reduction of about 19%. This reduction varies depending on rate levels but typically ranges from 15% to 25%.

Exceptions and Special Cases in Quebec

Renewal with the same lender: the stress test generally does not apply if you stay with your current lender at renewal.
Switching lenders at renewal: you will need to pass the stress test again, which may limit your options if rates have risen since your original mortgage was granted.
Provincial lenders: Desjardins caisses and other provincially regulated institutions are not directly subject to B-20, but generally apply similar criteria as a matter of prudence.
Private lenders: private mortgage lenders are not subject to B-20, but their rates are significantly higher and this avenue should only be considered as a last resort.

Frequently Asked Questions

What exactly is the mortgage stress test?

The stress test is an OSFI requirement that forces lenders to verify you can make your mortgage payments at a rate higher than your contract rate. It is necessary to qualify at the higher of your contract rate + 2% or the Bank of Canada's qualifying rate floor. This ensures you can withstand a future rate increase.

Does the test apply even with a 20% or larger down payment?

Yes. Since January 1, 2018, the stress test applies to all borrowers regardless of down payment amount. Before that date, only borrowers with less than 20% down payment (insured mortgages) had to pass the test. Guideline B-20 extended this requirement to all uninsured mortgages as well.

How much does the test reduce my borrowing capacity?

The reduction varies depending on current rates, but typically ranges from 15% to 25% of borrowing capacity. For example, if you could borrow $500,000 at the contract rate, the stress test might reduce that to approximately $375,000 to $425,000. The impact is greater when the gap between the contract rate and qualifying rate is large.

Are there any exceptions to the stress test?

Mortgage renewals with the same lender are generally exempt from the stress test. However, if you switch lenders at renewal, you will need to requalify. Provincially regulated lenders (such as certain Desjardins caisses) are not directly subject to OSFI's B-20 guideline, but most apply similar criteria.

Can the qualifying rate change?

Yes. The qualifying rate floor is reviewed periodically by the Bank of Canada and OSFI. It can be adjusted upward or downward depending on market conditions. Borrowers should verify the current rate at the time of their mortgage application with their AMF-certified mortgage broker.