Sarah is applying for a new mortgage in Surrey. Her lender informs her that she needs to qualify at a higher rate than her contracted mortgage rate. What is the most likely reason for this requirement?

Question: Sarah is applying for a new mortgage in Surrey. Her lender informs her that she needs to qualify at a higher rate than her contracted mortgage rate. What is the most likely reason for this requirement?

Answer options:

• Sarah has a poor credit history, requiring a penalty rate. ✅ The lender is applying the mortgage stress test (Benchmark Qualifying Rate) as mandated by OSFI B-20 guidelines.
• Sarah is applying for a variable-rate mortgage, which always has a higher qualifying rate.
• Her gross debt service ratio is too high, necessitating a higher qualifying rate.

Correct answer: The lender is applying the mortgage stress test (Benchmark Qualifying Rate) as mandated by OSFI B-20 guidelines.

Explanation: Federally regulated financial institutions are required by OSFI's B-20 Guideline to apply a 'stress test' using a qualifying rate (the greater of the contract rate + 2% or the Bank of Canada's five-year benchmark rate) for uninsured mortgages.