A buyer has a gross annual income of $80,000 and applies for a variable-rate mortgage with a contract rate of 5.5%. The Bank of Canada benchmark qualifying rate is 5.25%. How will the lender assess their affordability using the stress test?

Question: A buyer has a gross annual income of $80,000 and applies for a variable-rate mortgage with a contract rate of 5.5%. The Bank of Canada benchmark qualifying rate is 5.25%. How will the lender assess their affordability using the stress test?

Answer options:

• They will qualify at the contract rate of 5.5%.
• They will qualify at the higher of 5.5% + 2% = 7.5% or 5.25%. ✅ They will qualify at the higher of 5.5% + 2% = 7.5% or the benchmark rate of 5.25%, which is 7.5%.
• They will qualify at the benchmark rate of 5.25% only.

Correct answer: They will qualify at the higher of 5.5% + 2% = 7.5% or the benchmark rate of 5.25%, which is 7.5%.

Explanation: For uninsured mortgages (variable or fixed), the stress test applies the higher of the contract rate + 2% or the Bank of Canada's benchmark rate. In this case, 5.5% + 2% = 7.5%, which is higher than the 5.25% benchmark rate.