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What is the Mortgage Qualifying Rate (MQR) in Canada? A 2025 Guide
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Here’s what we’ll cover:
• What is the Mortgage Qualifying Rate (MQR)?
• Why Does the Stress Test Exist?
• How the MQR is Calculated in 2025
• Real-Life Example: Can Vikram & Amrita Qualify for $700,000?
• How the Stress Test Impacts Your Mortgage Approval
• Exceptions and Workarounds (Private Lenders, B-Lenders)
• What to Do If You Don’t Pass the Stress Test
• Final Thoughts: Is the MQR Here to Stay?
You’ve found your dream home, done the budget math, and you’re ready to apply for a mortgage. But then your broker says, “Let’s see if you pass the stress test.”
Stress test? What test?!
In Canada, the **Mortgage Qualifying Rate (MQR)** is a tool the government uses to make sure buyers can afford their mortgage payments even if rates rise. And in 2025, this test is still very much part of the mortgage approval process.
In this guide, we’ll break it down step-by-step — so even if you’ve never heard of the MQR, you’ll walk away feeling mortgage-smart.
What is the Mortgage Qualifying Rate (MQR)?
The MQR is the interest rate lenders use to check whether you can handle your mortgage payments if rates go up in the future. It’s **not** the actual rate you’ll pay — it’s a higher rate used to test your financial resilience.
Think of it as a ‘stress test’ to protect homeowners from getting in over their heads.
Why Does the Stress Test Exist?
After the 2008 global financial crisis and again after Canada’s housing boom, regulators wanted to make sure Canadians weren’t borrowing too much. So in 2016 and 2018, the government (via the **Office of the Superintendent of Financial Institutions**, or OSFI) brought in rules that say:
“Even if a lender is offering you a 5% rate, we’ll test you at a higher rate — just to be safe.”
The logic is simple: if interest rates rise later, you should still be able to afford your home.
📆 Timeline: Major Mortgage Stress Test Changes (2016–2025)
Canada’s mortgage stress test has evolved significantly since its introduction. Here’s how the qualifying rules have changed — and what that means for homebuyers.
🔹 October 2016
Stress Test Introduced: First implemented for insured mortgages. Buyers had to qualify at the greater of the contract rate or benchmark rate.
🔸 January 2018
Expanded to All Buyers: OSFI expanded the stress test to uninsured mortgages. Borrowers needed to qualify at contract rate + 2% or the benchmark rate.
🟢 June 2021
Minimum Qualifying Rate Raised: Benchmark qualifying rate increased from 4.79% to 5.25% to reflect rising risk concerns.
🟣 March 2025
Dynamic Stress Test Considered: Government begins consultation on revising stress test to align with economic cycles (TBD).
How the MQR is Calculated in 2025
As of 2025, the Mortgage Qualifying Rate is set as the **greater of:**
1. Your contract rate + 2%, or
2. 5.25% (the benchmark floor)
For example, if you’re offered a rate of 5.19%, you’ll be tested at 7.19%.
🧮 How Is the Mortgage Qualifying Rate (MQR) Calculated?
To pass Canada’s stress test, you must qualify at the higher of two rates. Here’s a simple breakdown:
📌 Option A: Contract Rate + 2%
- 🔹 If your offered rate = 4.89%
- 🔹 Stress test rate = 6.89%
📌 Option B: Benchmark Rate (BoC)
- 🔹 Current benchmark = 5.25%
- 🔹 Used only if it’s higher than Option A
✅ Your Qualifying Rate = the Higher of the Two Options
(e.g., 6.89% used if it’s above 5.25%)
(e.g., 6.89% used if it’s above 5.25%)
Real-Life Example: Can Vikram & Amrita Qualify for $700,000?
Let’s say Vikram and Amrita want to buy a $700,000 home in Brampton with 10% down. Their broker offers them a 5.34% rate.
That means their stress-tested rate will be 7.34%. Their gross debt service (GDS) and total debt service (TDS) ratios must still pass using this higher rate.
Even though they could comfortably afford the real monthly payment (~$3,400), the stress test uses a fake payment (~$4,150) — and their income must qualify for that.
The result? Their purchasing power drops. They may need to:
– increase down payment
– reduce target home price
– add a co-signer
– or consider a B-lender or private lender
How the Stress Test Impacts Your Mortgage Approval
This one rule — the MQR — is why many Canadians qualify for much **less** mortgage than they expected.
Your income, debt levels, and the stress-tested interest rate all play together to determine how much you’re allowed to borrow.
For every 1% increase in the stress-tested rate, your buying power could drop by 8–10%.
🏠 Income vs Buying Power by Mortgage Qualifying Rate (MQR)
Your maximum mortgage amount depends heavily on the qualifying rate. Here’s how a fixed household income stretches under different MQR scenarios.
| 💼 Household Income | 🏦 MQR at 4.79% | 🏦 MQR at 5.25% | 🏦 MQR at 6.00% |
|---|---|---|---|
| $80,000 | ~$400,000 | ~$375,000 | ~$345,000 |
| $100,000 | ~$510,000 | ~$480,000 | ~$445,000 |
| $120,000 | ~$610,000 | ~$575,000 | ~$535,000 |
| $150,000 | ~$765,000 | ~$725,000 | ~$670,000 |
📉 Note: Higher stress test rates reduce your borrowing power — even if your income stays the same.
Exceptions and Workarounds (Private Lenders, B-Lenders)
If you don’t pass the stress test with a traditional bank or credit union (A lender), you might consider:
– **B-lenders**: More flexible with credit or income types, often still stress-test but with slightly looser criteria
– **Private lenders**: Usually skip the stress test entirely — but come with higher rates and fees
These aren’t ideal for everyone, but they’re useful if you’re buying urgently or self-employed with non-traditional income.
What to Do If You Don’t Pass the Stress Test
Don’t panic. You still have options:
– Lower your target purchase price
– Increase your down payment to reduce the loan amount
– Pay down existing debts to lower your TDS ratio
– Add a co-borrower with stable income
Even small changes — like paying off a car loan — can tilt the math in your favour.
And of course, talk to a broker. They can look beyond your bank and see what other lenders are willing to do.
Final Thoughts: Is the MQR Here to Stay?
In 2025, despite industry pushback, the MQR stress test remains a pillar of Canadian mortgage policy. It’s frustrating, yes — but it also protects buyers from overextending.
If you understand how the test works and prepare your finances accordingly, you’ll be in a much stronger position to get approved and feel confident about your home purchase.
Need help figuring it all out? A good mortgage broker can break it down for you — and help you navigate the rules without losing your mind.
