Canadian borrowers have spent the past seven years living with the mortgage "stress test," a rule that forces buyers and refinancers to qualify at the greater of 5.25 percent or two percentage points above their contract rate. That buffer protected households when rates were cheap, but in today's higher-rate world it is under fresh scrutiny. In June, the Office of the Superintendent of Financial Institutions, OSFI, signalled it could replace that test with a loan-to-income, LTI, framework capped at 4.5 times a borrower's gross income. The change could land as early as 2026, and every Canadian with a mortgage decision on the horizon needs to understand the potential fallout.
Under the proposed rules lenders would monitor the share of new uninsured mortgages that exceed the 4.5× income cap, rather than forcing every applicant to clear a universal stress-test rate. The cap already applies at the portfolio level for federally regulated lenders beginning in fiscal 2025, giving OSFI real-world data before it makes a final decision on whether to scrap the stress test entirely.
OSFI says it will evaluate the framework until at least January 2026, then decide whether the LTI limit will stand alone or work alongside a scaled-back stress test. That timeline means borrowers shopping for pre-approvals in late 2025 could become the first to feel the impact.
The Bank of Canada held its overnight rate steady at 2.75 percent on July 30, 2025, its second consecutive hold. While stability offers short-term relief, a massive renewal wave means roughly 60 percent of all outstanding mortgages will reset between now and the end of 2026, most of them at higher rates.
The central bank's own modelling shows that about 60 percent of those renewing will still see payment increases, averaging 10 percent in 2025 and 6 percent in 2026 even if rates remain flat. In other words, qualification rules and payment affordability are converging issues for many households.
Consider a couple earning a combined $150,000, seeking a five-year fixed mortgage at 4.69 percent with a 25-year amortization and 20 percent down.
For borrowers on the cusp of qualifying, the difference can be the gap between condo and townhouse, or townhouse and detached home. Note, however, that lenders must keep their overall portfolio within OSFI's limits, so not every applicant will receive the higher ceiling.
Economists are split. Some argue that income-based caps in markets like the United Kingdom cooled demand and discouraged speculative bidding, implying price softness is possible. Others warn that if the LTI becomes the sole test and rates decline modestly, latent demand from sidelined buyers could spark renewed price pressure in mid-2026.
In the short term, expect a flurry of purchases before any transition date, as borrowers rush to lock in stress-test-based approvals. Similar surges occurred in 2016 before insured- versus uninsured-loan rule changes and again in 2018 when OSFI first introduced the stress test for conventional mortgages.
Navigating regulatory change is exactly where an experienced broker adds value. We monitor OSFI updates, Bank of Canada releases, and lender policy memos daily so you do not have to. When the rules shift, our team will re-underwrite your file under both regimes and advise on timing your application for maximum borrowing power, or maximum safety, depending on your goals.
Whether you are buying your first home, moving up, or facing renewal anxiety, reach out for a personalized assessment. We will map out best-case, base-case, and worst-case payment projections, factoring in potential LTI caps, future rate moves, and your household budget.
The mortgage stress test is not gone yet, but Canada's shift toward an income-based framework is well under way. The window to optimize your borrowing strategy under the current rules is measured in months, not years. Proactive planning today can save thousands in interest tomorrow and put you in a stronger negotiating position when OSFI makes its final call in 2026.
Ready to see where you stand? Book a discovery call or apply online for a no-obligation pre-approval and stress-test check-up. Together, we will make sure policy changes work for you, not against you.