How much the stress test reduces what you can borrow

How much less can you borrow because of the stress test?

At today's average rates, the stress test cuts the most you can pay for a home by roughly 12% to 14%, compared with qualifying at the rate you'll actually pay. For a household earning $110,000, that's about $85,100 to $85,500 of purchase price. Here is the calculation for one household, step by step.

The table below runs the same comparison across incomes, at the insured and uninsured averages, with the down payment held at a fixed share of the price:

Notice that the percentage barely moves with income. With no other debts, housing costs (GDS) are the limit at every income, and the loan scales with income. What sets the size of the cut is the rate and how much of the price you borrow, not how much you earn.

Why does a 2-point buffer cost this much?

Because most of an early mortgage payment is interest, adding 2 points to the rate raises the monthly payment on the same loan by roughly a fifth. Over 25 years, the payment is about 21% higher at 6.12% than at 4.12%, and about 21% higher at 6.58% than at 4.58%.

The lender caps that higher, pretend payment at 39% of your income (with tax and heating). So the loan has to shrink until the qualifying payment fits: in the $110,000 row, the most the household can borrow drops by about 15% (insured) and 16% (uninsured).

Why is the insured loss bigger as a share of the price? Mostly because insured buyers put less down. The test shrinks only the borrowed part of the price, so the more of the price is your own money, the smaller the share you lose.

Does a 30-year amortization change the cost?

It raises what you can buy, and it also makes the test take a bigger slice. On a 30-year loan the 2-point buffer lifts the payment by about 25% at 4.12%, against 21% over 25 years, because a longer loan's payment is even more interest and less principal.

Run the worked example's couple as first-time buyers at 30 years and they pass up to $685,600 instead of $648,000. But without the test they'd reach $814,900, so the test now costs $129,300 (15.9%) against $105,400 (14.0%) at 25 years. Only first-time buyers and buyers of new builds can take 30 years on an insured loan, and the premium rises by 0.20% of the loan.

Does the cost change when rates move?

Yes, and not in a straight line. Here's one household ($120,000 income, $300,000 down, uninsured, no other debts) across contract rates from 2.50% to 6.50%:

Two patterns stand out:

• Below 3.25%, the floor takes over. Every rate from 2.50% to 3.25% qualifies at 5.25%, so the with-test maximum stays at $843,300 while the no-test maximum keeps rising. At 2.50% the test costs 15.6% of buying power, the biggest share in the table.
• Above 3.25%, the cost shrinks slowly as rates rise. It falls from 11.3% at 3.25% to 9.0% at 6.50%, because 2 points is a smaller relative jump on a higher rate. You can buy less at higher rates either way; the test just takes a smaller slice.

Do other debts change the cost?

They lower both numbers, but the share the test takes hardly moves. Here is the worked example's couple with different monthly debt payments:

Up to a point, debts change nothing at all: while housing costs (GDS) are the limit, the extra room under the 44% TDS limit absorbs them. Past that point TDS takes over and every dollar of debt payment comes off your buying power, with or without the test. The test raises the same mortgage payment whichever ratio is the limit, so the share stays close to 14%.

Can you shrink the cost?

The buffer itself is fixed, but you can change what it applies to:

• A lower rate moves your qualifying rate down point for point, as long as you're above 3.25%. Before you accept an offer, check whether it's a good rate against current averages.
• Fewer other debts matter once TDS is what limits you; the debt payoff ranker shows which payment to clear first.
• A bigger down payment shrinks the borrowed part, which is the only part the test cuts.

Each lever is solved for a real example in how to pass the stress test.

What do people get wrong about the cost?

• "The stress test raises my payment." It doesn't. You pay the contract rate; the qualifying payment exists only on the lender's worksheet.
• "A bigger income means a smaller cut." In dollars it's bigger; as a share it's about the same. The table by income shows it.
• "Rates near 3% would make the test painless." The opposite: below 3.25% the 5.25% floor sets the test, and the gap between the rate you pay and the rate you're tested at widens.
• "20% down avoids the cost." Not at a bank or federally regulated trust company: OSFI's Guideline B-20 applies the same qualifying rate to uninsured loans.

What this estimate leaves out

These are estimates from public averages, not quotes. Your property tax, heating and condo fees change the answer, and uninsured lenders choose their own GDS and TDS limits under B-20, so a lender may allow more or less than the 39% / 44% we use. Closing costs and the cash you need on top of the down payment aren't included; a full purchase budget covers those.