What the test checks
A federally regulated lender must verify that you could still carry your payments if rates rose. It therefore qualifies you at a rate higher than your contract rate, not at the rate you will actually pay.
Where the rule comes from
It flows from Guideline B-20 of the Office of the Superintendent of Financial Institutions, which governs residential mortgage underwriting. Its purpose is prudential: to limit the risk that a household becomes insolvent at renewal.
The qualifying rate
It is the higher of two figures: a floor set by the regulator, or your contract rate plus a set spread. Both the floor and the spread are revised by the regulator; check the value in force with an official source rather than relying on a figure read elsewhere.
The practical effect on the amount
At the same income, the test lowers the maximum loan compared with a calculation at the contract rate. It is the most common reason for a gap between what a buyer expected to get and what the lender approves.
Non-federal lenders
Some provincially chartered lenders are not subject to the same guideline. That does not make the loan safer or cheaper: terms, fees, and insurance can differ substantially.
What to do with this
Have your capacity established under the test before you start viewing, not after an accepted offer. A mortgage broker calculates that figure up front and keeps you from building a plan on a number the lender will never use.
No rate, price, or recommendation on this page. Amounts and limits change: verify them with official sources before deciding.