10 Years of Canada's Mortgage Stress Test: How Does It Still Impact Your Home Buying Plans
Thursday, December 4, 2025
By Paula Clark for REALTOR.ca
Let’s go back in time.
It’s 2016 and low interest rates are drawing would-be homeowners onto the property ladder like never before. Urban markets like Toronto and Vancouver are teeming with increased demand driving up housing costs by 30% to 40%. These conditions force home buyers to take out mortgages at price tags that are unprecedented (at the time).
“Young people were taking out $1 million and $2 million mortgages,” said Drew Donaldson, mortgage broker and principal of Donaldson Capital in Toronto, Ontario. “So the government of Canada decided to slow it down and prevent first-time home buyers from being shut out of the market in future years.”
Homeowners also had cause for concern. The size of these mortgages meant even a small rate increase could put variable-rate monthly payments out of reach, or make it tougher to qualify for a renewal when their five-year fixed-rate contract was up.
On top of all that, Canadian household debt had risen to an all time high. That’s why the Office of the Superintendent of Financial Institutions (OSFI) implemented the mortgage stress test, with the goal of preventing the situation from becoming untenable.
So in addition to calculating your GDS and TDS, home buyers would now have to prove they could cover their mortgage payments based on the highest number in these scenarios:
• If the contract rate increased by 2% (eg. 4% + 2% = 6%)
• A 5.25% qualifying rate, even if the contract rate was below 3.25%
Back in 2016, the stress test started with insured mortgages, and then expanded in 2018 to include uninsured mortgages. But, some exceptions remained.
The stress test doesn’t have as much of an affect on:
• money borrowed from credit unions, which can have slow turnarounds, which wasn’t ideal in the Toronto market;
• alternative and private lenders, who charge higher interest;
• people with co-signers, which not everyone has; and
• folks with liquid assets they can use as collateral, which is rare given Canada’s level of household debt.
Who was impacted by the stress test?
Not everyone was a fan of stress tests at the start, including Donaldson.
While he would never advise a client to borrow at a level they can’t afford, his job is getting his clients the best deal possible to buy a home they will love.
Eventually, he saw it differently.
“The policy makers did manage to slow down the amount of mortgage debt people could get themselves into,” he said. “So it prevented some people from taking out mortgages they couldn’t afford.”
But he acknowledges the stress test came with unintended consequences for some people, like folks who work on commission, or run a business and pay themselves a modest salary. In those cases, you could only be qualified on your base salary—even if you expected an additional $200,000 at the end of the year from a commission bonus, or dividends.
That meant there were buyers who could afford a higher mortgage, but couldn’t get approved under the stress test. Donaldson helped these clients by leveraging relationships with private lenders, a higher interest rate being the cost.
Another solution came from the banks, under the watchful eye of regulators of course. They created high-net-worth programs for people who had money in the bank that could be used for collateral.
For example, if you qualified for a $1 million mortgage, but had your eye on a higher priced home and needed a $1.35 million mortgage, the bank would count $350,000 in stocks and bonds dollar-for-dollar toward your approval under the stress test.
Finally, getting a co-signer was still an option, which led to some strange situations—like a 50-year-old physician (and owner of a profitable business) who had to ask their octogenarian father to co-sign their mortgage, just to afford the home he wanted for his family.
Should the stress test stay or go?
Comments from OSFI Superintendent Peter Routledge at the 2024 Global Risk Institute Annual Summit suggest that his office is aware the stress test may unfairly bar some people from the housing market, which explains why they’re currently researching alternative risk assessment models.
Drew’s take on the future of the stress test is this: “I thought they should have relaxed it when rates went up to 6%, because we had to qualify people at 8%,”he said. “There comes a point where you have to relax the stress test because rates aren’t going to keep going up.”
In 2020, after changes were made to the mortgage stress test, the Canadian Real Estate Association (CREA) released a statement and recommendations to make housing more attainable.
“REALTORS® have advocated for changes to the stress test on behalf of potential homeowners who have been sidelined, borrowers who have moved away from the regulated market to less-regulated options, and real estate markets across the country in need of relief,” said Jason Stephen, Past Chair of CREA.
Their recommendations were reviewing the mortgage stress test to ensure the realities of local real estate markets are taken into consideration, and allowing existing mortgage holders to be exempted from the stress test at the time of renewal.
So what’s the bottom line for home buyers and homeowners?
Never forget that you are the one in the driver’s seat of your personal finances. So, when you’re looking for a mortgage broker, ask them about the breadth of relationships they have with different types of lenders, from big banks, to credit unions and alternative and private lenders. That’s because every lender interprets the stress test differently.
“While there is a general consensus, lenders use different forms of income as confirmable income,” said Donaldson.
Your REALTOR® is a key resource who can point you to mortgage professionals who have brokered good deals for their clients.
It’s the best way to know that every possible financing option is on the table, without putting your future at risk.
If you have any questions about today’s blog topic, or you would like to talk to one of our team’s trusted and experienced mortgage specialists about getting pre-approved for a mortgage, please give me a call, 905-683-7800.
Thinking about buying, selling or both in the next little while? Contact me and I’ll show you how my unique Home Selling System will get your home sold fast, for top dollar, with little inconvenience to you. With my Home Buying System, we will help you find and purchase the home of your dreams!
You can call me at 905-683-7800. You can also reach me by email: brian@briankondo.com.
Thanks for reading today’s BLOG!!!
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Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
Paula Clark's The article above was initially published on Realtor.ca. You can find it by clicking here.
| REALTOR.ca is the most popular and most trusted real estate website in Canada. Owned and operated by the Canadian Real Estate Association (CREA), REALTOR.ca provides up-to-date and reliable information that makes finding your dream property easy and enjoyable. REALTOR.ca is popular with sellers, buyers, and renters and is accessible online and on mobile devices. |
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Paula Clark |
About the Author Paula Clark is a real estate enthusiast and content creator who has travelled the country and loves to share what she’s learned about the freedom of property ownership. There’s nothing she enjoys more than telling people’s stories and making helpful information accessible to anyone who needs it. Whether she’s interviewing the CEO of an award-winning company, the proprietor of a small business, or a Toronto crane operator with a social media following, Paula finds the kernel of wisdom in any story |
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