Key takeaways
- You must qualify at the higher of 5.25% or your mortgage rate plus 2% (the stress test)
- Housing costs should be no more than 39% of gross income (GDS) for an insured mortgage
- All debts, including housing, should be no more than 44% of gross income (TDS)
- Minimum down payment: 5% of the first $500,000, 10% of the part above, 20% at $1.5 million or more
- With less than 20% down you need mortgage default insurance
What is the mortgage stress test?
To get a mortgage from a federally regulated lender, you must show you can afford payments at a qualifying rate. CMHC states the qualifying rate is the greater of your contract rate plus 2%, or 5.25%. The Office of the Superintendent of Financial Institutions (OSFI) applies the same minimum qualifying rate to uninsured mortgages at federally regulated banks.
If your bank offers 4.5%, you must qualify at 6.5%. You still pay 4.5%: the test only decides how much you can borrow.
GDS and TDS: the two limits
Gross debt service (GDS) is your monthly mortgage payment (principal and interest), property tax, heating, and 50% of condo fees, divided by your gross monthly income. CMHC’s limit is 39%.
Total debt service (TDS) is everything in GDS plus other debt payments such as car loans, student loans, lines of credit and credit cards. CMHC’s limit is 44%.
The calculator finds the largest payment that fits both limits at the qualifying rate, turns it into a mortgage amount, then adds your down payment. It also checks the price your down payment allows.
Minimum down payment rules
| Purchase price | Minimum down payment |
|---|---|
| $500,000 or less | 5% |
| $500,000 to under $1.5 million | 5% of the first $500,000 + 10% of the rest |
| $1.5 million or more | 20% (insurance not available) |
With less than 20% down, your lender requires mortgage default insurance (for example from CMHC). The premium is added to your mortgage and is not included in this calculator. Estimate it with the mortgage insurance and tax calculator. CMHC also suggests budgeting 1.5% to 4% of the price for closing costs: see the closing costs calculator.
Worked example
Marco and Elena earn $120,000 together, pay $400 a month on a car loan, and have $60,000 saved. Their bank offers 4.5% over 25 years, so they qualify at 6.5%. With $350 property tax and $120 heating, the most they can pay is about $3,430 a month (the GDS limit). That supports a mortgage of about $512,000 and a home price of about $572,000. Their real payment at 4.5% would be about $2,834 a month.
Newcomers: can you get a mortgage?
Yes. Permanent residents can get insured mortgages with as little as 5% down. CMHC’s newcomer program also accepts some people on work permits, and alternative proof of credit (such as rent and utility payment history) if you have no Canadian credit history yet. At least one borrower or guarantor needs a credit score of 600 or more, or an alternative credit assessment. Lenders also look at how long you have worked in Canada.
Non-Canadians may be blocked from buying residential property by the federal foreign buyer ban: check the foreign buyer tax calculator. Save your down payment in an FHSA, and compare renting and buying with the rent vs buy calculator.