Posted On Sep 21, 2025

With interest rates finally starting to come down, you might be thinking that one of the biggest hurdles to buying a home—the mortgage stress test—is becoming less of a big deal. It’s a logical thought, but the reality is a bit more complex.

The stress test is still in place, and it remains the single most important calculation determining how much you can borrow. Understanding how it works is the key to understanding your true borrowing power in the fall of 2025.

Let’s quickly demystify this crucial rule.

What is the Stress Test, Anyway?

In simple terms, the stress test is a financial simulation. The government requires lenders to qualify you for a mortgage not at the interest rate you'll actually be paying, but at a higher, "what if" rate. This ensures that you could still afford your mortgage payments if interest rates were to rise significantly during your term.

 

How is the Stress Test Rate Calculated?

As of today, you must qualify at the higher of two numbers:

  1. Your contract interest rate plus 2%.

  2. The minimum qualifying rate set by the government, which is currently 5.25%.

Let's use a real-world example. Say you're offered a great mortgage rate of 4.75%. To qualify, the lender has to run the numbers as if you were paying:

Your contract rate+2%=4.75%+2%=6.75%

Since 6.75% is higher than the 5.25% floor, you must prove you can afford the mortgage payments at that higher 6.75% rate.

 

Why It Still Matters, Even With Lower Rates

You might think, "My rate is lower than it was last year, so this should be easier!" But the key is the 2% buffer. Even if your actual rate drops from 5.5% to 4.5%, your qualifying rate only drops from 7.5% to 6.5%. It helps, but it doesn't eliminate the challenge.

The stress test continues to have a major impact:

  • It Reduces Your Borrowing Power: The amount you're approved for is based on this higher qualifying rate. This is why you might be pre-approved for significantly less than you feel you can afford based on your actual budget.

  • It Affects Renewals (When Switching Lenders): If you are renewing your mortgage and want to switch to a new lender for a better rate, you might need to pass the stress test again. This can sometimes trap homeowners with their current lender, even if better offers exist elsewhere. (Note: You do not need to re-qualify if you renew with your existing lender).

 

How to Prepare and Plan for the Stress Test

The stress test is a gatekeeper, but it’s not an insurmountable wall. The best way to prepare is to reduce the other debts that factor into your qualification.

  • Pay down or consolidate high-interest credit cards.

  • Pay off any car loans or personal lines of credit if possible.

  • The larger your down payment, the smaller the loan, making it easier to pass the test.

The stress test isn’t designed to be punitive; it's a safety measure. But it does mean that getting the right advice and a clear understanding of your numbers is more important than ever. If you're wondering how the stress test impacts your specific homeownership goals, let's run the calculation together.

Let's connect!

Ready to discuss your home ownership goals and a Better Mortgage by Dom?

 

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