GDS and TDS limits are CMHC's for insured mortgages; other insurers and lenders may set their own. Credit card and line-of-credit balances count at 3 % a month or more. Variable-rate payments are approximate.
Before lending, a bank or credit union checks that you could still make your payments if rates rose. It does this by qualifying you at a higher rate than the one in your contract, called the minimum qualifying rate.
The qualifying rate is the higher of your contract rate plus 2 percentage points, or 5.25 %. A 4.5 % offer is tested at 6.5 %.
The test applies to insured mortgages (less than 20 % down) and to uninsured mortgages at federally regulated lenders.
At that rate, housing costs (payment, property tax, heating and half of any condo fees) should stay within 39 % of gross income, the gross debt service ratio.
Housing costs plus all other debt payments should stay within 44 %, the total debt service ratio.
Enter your income, the mortgage amount, the rate you were offered and your other monthly costs. The calculator works out the payment at the qualifying rate, using the semi-annual compounding that Canadian fixed-rate mortgages use, then shows both ratios and the largest mortgage that passes. The 39 % and 44 % limits are the ones CMHC applies to insured loans; for uninsured loans a lender may use its own limits, and it will also look at your credit history.
Frequently asked questions
Do I have to pass the stress test when I renew?
Not if you stay with your lender. If you move an uninsured mortgage to another federally regulated lender at renewal without increasing the amount or the amortization, OSFI does not expect the new lender to apply the test. Insured mortgages can also switch lenders at renewal without requalifying.
Why is my payment calculated with semi-annual compounding?
Under the federal Interest Act, the rate on a Canadian mortgage must be stated as calculated yearly or half-yearly, not in advance, and fixed-rate mortgages are normally compounded twice a year. A 5 % rate compounded half-yearly works out to a slightly lower monthly rate than 5 % divided by 12.
Does a larger down payment help me pass?
It lowers the loan and therefore the payment at the qualifying rate, which improves both ratios. With 20 % or more down you also avoid the mortgage insurance premium, which would otherwise be added to the loan.
Indicative results. This is not financial advice.
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