Stress Test
Mortgage Stress Test
Canadian mortgage term definition with formula, examples, and limits used by mortgage brokers.
Definition
Borrowers must qualify at a higher interest rate to ensure affordability if rates rise. Calculated as the maximum of contract rate + 2% or 5.25%.
Formula
Qualifying Rate = max(Contract Rate + 2%, 5.25%)
Example
A 4.5% contract rate requires qualification at 6.5%.
Related Terms
GDSMonthly housing costs divided by gross monthly income. Includes mortgage payment, property tax, heating, and 50% of condo fees.TDSAll monthly debt payments divided by gross monthly income. Includes housing costs plus credit cards, car loans, lines of credit, and other debts.LTVTotal mortgage debt divided by property value. Determines if CMHC insurance is required and which lenders qualify.CMHC InsuranceMandatory mortgage default insurance required when down payment is less than 20% (LTV > 80%). Enables up to 95% LTV financing.Semi-Annual CompoundingCanadian mortgages compound interest twice per year (every 6 months), not monthly like US mortgages. This affects payment calculations.
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