Rules · Mortgage qualification rules
Mortgage qualification rules in Canada
Federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44% and apply a qualifying stress-test rate above the contract rate. Home equity lines of credit are generally limited to 65% of appraised value.
Published values
| Item | Value | Note | Publisher |
|---|---|---|---|
| Total debt service guideline (federally regulated lenders) | about 44% | Housing costs plus all other debt payments as a share of gross income. | Office of the Superintendent of Financial Institutions |
| Home equity line of credit limit | 65% of appraised value | At federally regulated lenders. | Office of the Superintendent of Financial Institutions |
| Total secured lending against a property | usually up to 80% | Combined across all secured lending against the same property. | Office of the Superintendent of Financial Institutions |
| Fixed-rate mortgage compounding | semi-annually | Required by Canadian law for fixed-rate mortgages. | Financial Consumer Agency of Canada |
| Qualifying rate | confirm with the publisher | The stress-test rate changes over time. Confirm the current figure with the lender or OSFI. | Office of the Superintendent of Financial Institutions |
A blank value means we could not verify a current figure against the publisher's own publication. We leave it blank rather than publish a guess.
Debt service ratios
Lenders compare your housing costs and your total debt payments against gross income. The total debt service guideline for federally regulated lenders is about 44%, which means housing plus every other debt payment has to fit inside that share of income.
The stress test
Qualification is assessed at a rate above the contract rate, so a borrower is tested against a higher payment than the one they would actually make at the start. That is what stops a loan being approved on the assumption that rates only fall.
Home equity lending limits
Where a line of credit is secured against a home, federally regulated lenders generally limit the drawn amount to 65% of appraised property value, with total secured lending against the property usually capped at 80%.
Compounding
Canadian fixed-rate mortgages are compounded semi-annually by law, so the monthly rate is not simply the annual rate divided by twelve. Calculators that ignore this overstate the interest slightly.
What this means for a borrower
- The payment you are offered and the payment you qualify for are different numbers.
- Clearing small debts before applying can raise borrowing power more than shopping for a rate.
- A longer amortisation lowers the payment and raises the total interest.
Why the qualifying rate exists
A payment that is affordable at today's rate can become unaffordable when the mortgage renews. The stress test makes that risk explicit at the point of application: the borrower is assessed against a higher rate, so the approval is based on a payment they could face rather than only the one they start with.
What lenders look at beyond the ratios
Down payment source, property type, location, employment history and the appraised value all feed into the decision. A strong ratio with a weak file is not an approval, and a marginal ratio with a strong file sometimes is. Ratios are a filter, not the whole assessment.
How to improve your position
- Reduce existing debt payments rather than shopping for a marginally lower rate.
- Save a larger down payment, which lowers both the loan and the payment.
- Avoid new credit applications in the months before you apply.
- Get a written pre-approval with its conditions, not a verbal number.
Renewal is a decision point
At renewal you are free to move lenders, and the qualification rules that applied to a new mortgage may be applied again if you switch. Shopping the renewal is one of the few genuinely free things in this market.
Questions
What is the stress test rate?
It is a qualifying rate set above the contract rate and applied to your payment when the lender assesses whether you can carry the mortgage. It changes over time, so confirm the current figure with the lender.
What is the maximum total debt service ratio?
Federally regulated lenders generally work to a total debt service ceiling of about 44%, which includes housing costs and all other debt payments.
How much can I borrow against my home?
At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised value, with total secured lending usually capped at 80%.
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Sources
- Total debt service guideline (federally regulated lenders) —
- Home equity line of credit limit —
- Total secured lending against a property —
- Fixed-rate mortgage compounding —
- Qualifying rate —
Every figure on this page is attributed to the publisher above. Where a value could not be verified against the publisher's own publication, it is left out rather than estimated.