The Mortgage Stress Test Explained — With the Actual Math

Why the Stress Test Exists

The mortgage stress test was introduced by the federal government to make sure you can still make your mortgage payments if interest rates rise. Even if you're getting a 4.5% rate today, the bank qualifies you at the higher of: your rate + 2%, or 5.25% (the federal floor rate).

The Math, Step by Step

Let's say you want to buy a $900,000 home in Surrey with a 20% down payment ($180,000). Your mortgage would be $720,000.

Step 1: Find your qualifying rate Your lender offers 4.8%. Add 2% → stress test rate = 6.8% (The floor is 5.25%, so 6.8% is used)

Step 2: Calculate the maximum payment at stress test rate At 6.8% over 25 years, your monthly payment = ~$4,980/month

Step 3: The GDS ratio rule Your housing costs (mortgage + property tax + strata fees + heating) can't exceed 39% of your gross income. $4,980 × 12 = $59,760/year ÷ 0.39 = $153,230 minimum gross income needed

How It Affects Your Buying Power in Surrey

A household earning $150,000/year qualifies for approximately:

• Without stress test: ~$1,050,000 mortgage
• With stress test (at current rates): ~$780,000 mortgage

That's a ~$270,000 difference. In Surrey, that's the difference between a townhouse in Newton and a detached home in Cloverdale.

Strategies to Improve Your Qualifying Amount

1. Longer amortization — 30-year amortization reduces monthly payments, which improves GDS ratio (only available with 20%+ down)
2. Larger down payment — Lower mortgage = easier to pass
3. Pay off debt first — Auto loans and credit cards count against your TDS ratio
4. Co-signer — A parent or sibling can increase the qualifying income

---

Want me to run the actual stress test numbers for your situation? Book a free 30-minute call at calendly.com/harie-realty/30min