How much house can I afford in Canada?

Roughly 4-5x your household income, but you must pass the stress test at ~5.25% or your rate +2%. With $100,000 income, you might qualify for $450,000-$550,000, depending on debts.

What is the mortgage stress test in Canada?

Banks must qualify you at the higher of 5.25% or your contract rate +2%. This ensures you can handle higher rates. It reduces how much you can borrow by 15-20% compared to actual rates.

Canadian Mortgage Guide 2026: Rates, Rules, and How to Qualify

Canadian mortgages require passing a stress test at rates higher than your contract rate. Here’s how to navigate the process.

Current Mortgage Rates (2026)

Term	Fixed Rate	Variable Rate
5-year	4.5-5.5%	5.0-6.0%
3-year	4.75-5.75%	—
2-year	5.0-6.0%	—
1-year	5.5-6.5%	—

Rates vary by lender and qualification.

Down Payment Requirements

Home Price	Minimum Down
Under $500,000	5%
$500,000-$999,999	5% on first $500K + 10% on remainder
$1,000,000+	20%

Down Payment Examples

Home Price	Minimum Down	Amount
$400,000	5%	$20,000
$600,000	5%/10%	$35,000
$800,000	5%/10%	$55,000
$1,000,000	20%	$200,000

Mortgage Insurance (CMHC)

Required with less than 20% down:

Down Payment	Insurance Premium
5%	4.00% of mortgage
10%	3.10%
15%	2.80%
20%+	Not required

Insurance Cost Example

$500,000 home, 10% down ($50,000):

Item	Amount
Mortgage	$450,000
CMHC (3.10%)	$13,950
Total mortgage	$463,950

The Stress Test

How It Works

Your Rate	Stress Test Rate
Contract rate + 2%	If higher than 5.25%
5.25%	Minimum benchmark

Example: If your rate is 5%, stress test is 7%.

Impact on Borrowing

Income	Without Stress Test	With Stress Test
$80,000	$480,000	$380,000
$100,000	$600,000	$475,000
$120,000	$720,000	$570,000

Stress test reduces borrowing by ~20%.

Qualification Rules

Debt Ratios

Ratio	Maximum	Calculation
GDS (Gross Debt Service)	39%	Housing costs ÷ Income
TDS (Total Debt Service)	44%	All debts ÷ Income

Housing Costs Include

Cost	Included in GDS
Mortgage payment	✓
Property tax	✓
Heat	✓
Condo fees (50%)	✓

Income Calculation

Income Type	How Counted
Salary	100%
Hourly (consistent)	Average × hours
Bonus	2-year average
Commission	2-year average
Self-employed	2-year average (or NOA)
Rental income	50-80%

Fixed vs Variable Rate

Feature	Fixed	Variable
Rate	Locked in	Changes with prime
Stability	Predictable payments	Payments may change
Early break cost	Higher (IRD)	Lower (3 months interest)
Historically better	Less often	More often

When to Choose Fixed

Situation	Why
Rates rising	Lock in lower rate
Budget sensitivity	Know exact payment
Peace of mind	No surprises

When to Choose Variable

Situation	Why
Rates falling	Benefit immediately
Plan to move	Lower break penalty
Can handle fluctuation	Often lower cost long-term

Amortization

Amortization	Down Payment	Available
Up to 25 years	Under 20%	Standard
Up to 30 years	20%+	Allowed
35 years	Rarely	Some credit unions

Payment Comparison ($500,000 mortgage, 5.5%)

Amortization	Monthly Payment	Total Interest
20 years	$3,439	$325,360
25 years	$3,046	$413,800
30 years	$2,838	$521,680

Shorter amortization = less interest, higher payment.

Mortgage Payment Example

$600,000 home, 10% down, 5.5% rate, 25 years:

Item	Monthly
Mortgage payment	$3,445
Property tax	$400
Insurance	$125
Utilities	$200
Total housing cost	$4,170

Income needed (GDS 39%): ~$128,000

Pre-Approval

Benefits

Benefit	Details
Know your budget	Confirmed borrowing power
Rate hold	90-120 days
Credibility	Sellers prefer pre-approved
Fast closing	Less to verify

Requirements

Document	Purpose
ID	Verify identity
Pay stubs	Prove income
Tax returns (2 years)	Income history
Bank statements	Down payment proof
Employment letter	Job confirmation

Closing Costs

Cost	Approximate Amount
Land transfer tax	0.5-2% of price
Legal fees	$1,500-$2,500
Home inspection	$400-$600
Appraisal	$300-$500
Title insurance	$300-$500
Moving	$500-$2,000
Total	1.5-4% of home price

Mortgage Features

Prepayment Privileges

Feature	Common Terms
Annual lump sum	10-20% of original
Payment increase	10-20% per year
Double-up payments	Some lenders

Portability

Feature	Details
What it is	Move mortgage to new home
Benefit	Keep your rate
Requirement	Same lender, similar timeframe

Assumable

Feature	Details
What it is	Buyer takes over your mortgage
When useful	Low rate locked in
Approval	Buyer must qualify

Breaking Your Mortgage

Penalty Types

Type	Calculation	When Used
3 months interest	Principal × Rate × 0.25	Variable rate
IRD (Interest Rate Differential)	Complex formula	Fixed rate

IRD Example

Item	Value
Remaining balance	$400,000
Your rate	3.5%
Current rate	5.5%
Time remaining	3 years
Penalty approx	$24,000

IRD can be very expensive on fixed mortgages.

Mortgage Brokers vs Banks

Feature	Bank	Broker
Rates	Their rates only	Multiple lenders
Negotiation	Some flexibility	More options
Cost to you	$0	$0 (paid by lender)
Relationship	Existing accounts	New relationship

Recommendation: Compare both.

Bottom Line

Consideration	Guidance
Down payment	20% avoids CMHC insurance
Rate type	Variable historically cheaper, fixed for stability
Amortization	25 years standard, 20 saves interest
Pre-approval	Get one before shopping
Stress test	Reduces borrowing power ~20%

Key tips:

Get pre-approved to know your budget
Compare multiple lenders and brokers
Budget 2-4% for closing costs
Variable rates are volatile but historically cheaper
Prepayment privileges reduce long-term costs
Breaking a fixed mortgage is expensive

Sources

Canada Mortgage and Housing Corporation. “Rental Market Report.” cmhc-schl.gc.ca/professionals/housing-markets-data-and-research

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy