In this guide
Every Canadian mortgage applicant must clear the federal stress test at their contract rate plus 2% (or 5.25%, whichever is higher), which typically clips purchasing power by 18–20%. CMHC insurance is mandatory under 20% down and adds 2.8%–4.0% to the mortgage balance. Fixed rates offer certainty at a premium and expensive IRD penalties; variable rates track prime and are cheaper to break. Insured amortizations cap at 25 years; conventional at 30.
What Is the Mortgage Stress Test?
All Canadian mortgage applicants — whether through a bank, credit union, or mortgage broker — must qualify at the higher of their contract rate plus 2%, or the Bank of Canada's benchmark rate (currently 5.25%). This means if your lender offers you 4.5%, you must prove you could afford payments at 6.5%.
The stress test typically reduces your maximum purchase price by 18–20% compared to what your actual payment suggests. For buyers in Greater Vancouver, this is a critical number to understand before you begin searching.
Use our mortgage calculator →When Do I Need CMHC Mortgage Insurance?
If your down payment is less than 20%, your mortgage must be insured through CMHC (or an approved alternative). The insurance protects the lender — not you — but it enables you to purchase with less than 20% down.
| Down Payment | Insurance Premium |
|---|---|
| 5% – 9.99% | 4.00% of mortgage amount |
| 10% – 14.99% | 3.10% of mortgage amount |
| 15% – 19.99% | 2.80% of mortgage amount |
| 20%+ | No insurance required |
The premium is added to your mortgage balance — not paid out of pocket at closing.
Fixed or Variable — Which Rate Is Better?
Fixed rates provide payment certainty for the term — typically 2 to 5 years in Canada. You pay a premium for the certainty, and breaking the mortgage early triggers an Interest Rate Differential (IRD) penalty, which can be significant.
Variable rates track the Bank of Canada's overnight rate through your lender's prime rate. When the BoC cuts, your rate drops. Breaking a variable mortgage early typically costs only 3 months' interest — a much smaller penalty than fixed IRD.
The right choice depends on your timeline, risk tolerance, and rate outlook. A mortgage broker can model both scenarios against your specific situation.
Amortization Periods
Insured mortgages (under 20% down) are capped at 25 years amortization. Conventional mortgages (20%+ down) can extend to 30 years. A longer amortization means lower monthly payments but significantly more total interest paid over the life of the loan. Our mortgage calculator lets you model different amortization periods side by side.
Related Resources
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