Buying a home in Canada in 2025 involves navigating a set of federal rules that determine how much a lender will let you borrow. These rules — including the mortgage stress test, minimum down payment thresholds, and debt service ratio limits — exist to protect both borrowers and the broader housing market. Understanding them before you speak to a lender puts you in a much stronger position and helps you set a realistic budget before you fall in love with a property you can't qualify for.
The 2025 Mortgage Stress Test
The mortgage stress test was introduced by the Office of the Superintendent of Financial Institutions (OSFI) to ensure that Canadians can afford their mortgages even if interest rates rise. As of 2025, the qualifying rate for all federally regulated lenders is the higher of your contract rate plus 2%, or 5.25%.
In practical terms, this means that if you negotiate a mortgage rate of 4.5%, you don't simply need to prove you can afford payments at 4.5%. You need to prove you can afford payments at 6.5% (4.5% + 2%), because that is greater than the floor of 5.25%. This stress test applies to insured mortgages (those with less than 20% down) and uninsured mortgages alike.
The practical effect of the stress test is that it reduces your maximum purchasing power by roughly 20% compared to qualifying at your actual contract rate. A household that could technically make payments on a $700,000 mortgage at 4.5% may only qualify for roughly $560,000 once the stress test is applied. Run the numbers before house hunting.
Minimum Down Payments in Canada
Federal rules set the minimum down payment based on the purchase price of the property:
- Homes priced up to $500,000: minimum 5% down payment
- Homes priced between $500,000 and $999,999: 5% on the first $500,000, plus 10% on the portion above $500,000
- Homes priced at $1,000,000 or more: minimum 20% down payment required
For example, on an $800,000 home, your minimum down payment would be $25,000 (5% of $500,000) plus $30,000 (10% of $300,000), for a total of $55,000 — or 6.875% of the purchase price. Note that any home over $1 million does not qualify for CMHC mortgage insurance and therefore requires the full 20% down regardless of circumstances.
| Purchase Price | Minimum Down Payment | Minimum % Down |
|---|---|---|
| $400,000 | $20,000 | 5% |
| $700,000 | $45,000 | 6.43% |
| $999,999 | $74,999.90 | 7.5% |
| $1,200,000 | $240,000 | 20% |
GDS and TDS Ratios Explained
Canadian lenders use two debt ratios to assess affordability: the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio.
The GDS ratio measures what percentage of your gross monthly income goes toward housing costs — specifically: your mortgage principal and interest, property taxes, heating costs, and 50% of any condo fees. Most lenders require your GDS ratio to be at or below 39%.
The TDS ratio adds all of your other monthly debt payments to that housing cost figure — car loans, student loans, credit card minimum payments, and any other regular debt obligations. The TDS ratio must generally stay at or below 44%.
These ratios are applied at the stress test qualifying rate, not your actual contract rate. A household earning $8,000 per month gross can carry a maximum housing cost (at the stress test rate) of about $3,120/month for GDS, and a total debt burden of $3,520/month for TDS. If you have significant existing debt, your qualifying mortgage amount decreases accordingly.
CMHC Mortgage Insurance
If your down payment is less than 20% of the purchase price, you are required by law to purchase mortgage default insurance, commonly called CMHC insurance after the Canada Mortgage and Housing Corporation (though it can also be provided by Sagen or Canada Guaranty). This insurance protects the lender — not you — if you default on the mortgage.
The insurance premium is added to your mortgage and paid off over the life of the loan. Premiums range from 2.80% (for a 15–19.99% down payment) to 4.00% (for a 5–9.99% down payment). On a $500,000 insured mortgage with 5% down ($25,000), the CMHC premium would be $19,000 (4% of $475,000 borrowed), bringing your total mortgage to $494,000. That premium is also subject to provincial sales tax, payable at closing.
How Much Can You Afford?
Rather than starting with a dream price and working backwards, the most reliable approach is to start with your gross income, apply the GDS limit, and work forward. At a 39% GDS and a $8,000/month gross income, your maximum housing cost — at the stress test rate — is roughly $3,120/month. Subtracting estimated property taxes ($350/month) and heating ($150/month) leaves approximately $2,620/month for mortgage principal and interest.
At the stress test rate of 6.5%, a $2,620/month payment over a 25-year amortization supports a mortgage of approximately $380,000. Add your down payment to that figure to get your maximum purchase price. If your down payment is $60,000, you could theoretically afford a home in the $440,000 range — assuming you have no other significant debt that would push your TDS ratio above 44%.
Every situation is different, which is why running your numbers through a mortgage calculator before talking to a lender — or a mortgage broker — is strongly recommended. It takes the surprise out of the conversation and helps you negotiate from an informed position.
Calculate Your Mortgage Affordability
Use our free Mortgage Calculator to estimate your maximum purchase price based on income, down payment, and the current stress test rate.
Open the CalculatorSources
- Office of the Superintendent of Financial Institutions — osfi-bsif.gc.ca
- Canada Mortgage and Housing Corporation — cmhc-schl.gc.ca