Canadian Mortgage Stress Test and Closing Cost Checklist

The B-20 Mortgage Stress Test explained

Canada's Office of the Superintendent of Financial Institutions (OSFI) requires federally regulated lenders to apply Guideline B-20, commonly called the "stress test," to all new mortgage applications. The rule ensures that borrowers can still make their payments if interest rates rise.

The qualifying rate

To pass the stress test, you must qualify at the higher of:

• The Bank of Canada's conventional five-year benchmark rate (currently 5.25%), OR
• Your actual contract rate plus 2.00%

Example: If your lender offers you a five-year fixed rate of 4.79%, your qualifying rate is 6.79% (4.79% + 2.00%). If rates fall enough that your contract rate plus 2% is below 5.25%, the floor rate of 5.25% applies instead.

How the stress test reduces your purchasing power

Qualifying at a higher rate than you will actually pay means a smaller maximum mortgage. Using approximate figures for a household earning $120,000/year with no existing debt and a 25-year amortization:

• At a qualifying rate of 5.25%: maximum mortgage approximately $620,000
• At a qualifying rate of 6.80%: maximum mortgage approximately $530,000

The stress test effectively reduces your purchasing power by 10–20% compared to qualifying at the contract rate alone. Use RealMaster's mortgage calculator to model your specific numbers.

Does the stress test apply to mortgage renewals?

As of 2024, borrowers renewing with the same lender are generally not required to pass the stress test again, even if they switch rate types (fixed to variable). However, if you switch to a different lender at renewal, the new lender must apply the stress test. This is an important consideration when shopping for better rates at renewal.

CMHC mortgage default insurance

Any home purchase with less than 20% down at a federally regulated lender requires mortgage default insurance, provided by CMHC, Sagen (formerly Genworth) or Canada Guaranty. The insurance protects the lender — not you — if you default, but as a buyer you pay the premium.

CMHC premium rates

The premium is calculated as a percentage of the insured mortgage amount (purchase price minus down payment):

• 5.00% – 9.99% down: 4.00% of the mortgage
• 10.00% – 14.99% down: 3.10% of the mortgage
• 15.00% – 19.99% down: 2.80% of the mortgage

The premium is added to your mortgage and amortized — it does not need to be paid upfront. However, it increases the total amount of interest you pay over the life of the loan. PST/HST applies to the premium in some provinces (Ontario charges 8% PST on the CMHC premium, paid at closing).

Example calculation

Purchase price: $750,000. Down payment: 10% = $75,000. Insured mortgage: $675,000. CMHC premium: 3.10% × $675,000 = $20,925. This is added to the mortgage: total mortgage = $695,925. Ontario PST on the premium ($20,925 × 8% = $1,674) is paid at closing, not added to the mortgage.

Eligibility limits for insured mortgages

As of December 2024, the purchase price limit for CMHC-insured mortgages was increased to $1,500,000 (up from $1,000,000). The minimum down payment for purchases above $500,000 is 5% on the first $500,000 and 10% on the remainder up to $1,500,000. Insured mortgages also have a maximum amortization of 25 years (30 years for first-time buyers purchasing new construction under the 2024 rules update — confirm current rules with your broker).

Ontario Land Transfer Tax — rates and first-time buyer rebates

Ontario's Land Transfer Tax (LTT) applies to every residential purchase in the province and is paid at closing. The tax is calculated on a sliding scale:

• 0.5% on the first $55,000
• 1.0% on $55,001–$250,000
• 1.5% on $250,001–$400,000
• 2.0% on $400,001–$2,000,000
• 2.5% on amounts over $2,000,000

Ontario LTT — first-time buyer rebate

First-time buyers receive a rebate of up to $4,000 against the provincial LTT. On purchases up to approximately $368,333, the rebate eliminates the LTT entirely. On higher-priced homes, the $4,000 is deducted from the calculated tax. To qualify, you must never have owned a home anywhere in the world and must occupy the home as your principal residence.

Toronto Municipal Land Transfer Tax (MLTT)

Toronto buyers pay a second land transfer tax at virtually identical rates to the provincial LTT. On a $900,000 purchase, both the Ontario LTT and the Toronto MLTT are each approximately $14,475, for a combined $28,950.

Toronto MLTT — first-time buyer rebate

Toronto first-time buyers receive a separate rebate of up to $4,475 against the municipal LTT. Combined with the provincial rebate, a first-time Toronto buyer can save up to $8,475 at closing.

Complete closing cost checklist

Use this checklist to estimate your total closing costs beyond the down payment:

• Ontario Land Transfer Tax (calculated on purchase price)
• Toronto Municipal LTT (Toronto purchases only)
• Less: first-time buyer LTT rebates (up to $8,475 in Toronto)
• Legal fees and disbursements: $1,500–$2,500
• Title insurance: $250–$400
• CMHC premium PST (Ontario): 8% of the CMHC premium amount
• Home inspection: $400–$600
• Appraisal (if required): $300–$500
• Property tax adjustment (prepaid by seller): varies
• Utility/maintenance adjustment: varies
• Moving costs: $1,000–$3,000+
• HST on new construction (check rebate eligibility)

Rule of thumb: budget 1.5%–2.5% of purchase price for closing costs in Ontario (excluding CMHC premium), or 3%–4% in the City of Toronto where both LTTs apply.