The bank does not approve your mortgage at the rate it offers you. It approves it at the contract rate plus two percentage points, or at 5.25%, whichever is higher.
That is the stress test, and it is the measure that decides how much house you can actually buy. Anyone calculating payments from the advertised rate walks into the lender conversation with a number that does not exist.
- The minimum down payment is tiered: 5% up to CAD 500,000, plus 10% on the portion above that, and 20% from CAD 1.5 million.
- The lender checks two ratios: housing costs cannot exceed 39% of gross income, and total debt cannot exceed 44%.
- You have three accounts to build the down payment: FHSA (CAD 40,000 lifetime), Home Buyers Plan (CAD 60,000 from an RRSP) and the TFSA.
How much you need for a down payment
The minimum is not a single percentage. It is tiered by price band.
Purchase price | Minimum down payment |
Up to CAD 500,000 | 5% of the price |
500,000 to 1.5 million | 5% on the first 500,000, plus 10% on the rest |
CAD 1.5 million or more | 20% of the price |
On an CAD 800,000 home the arithmetic runs like this: 5% of 500,000 is CAD 25,000, plus 10% of 300,000 is CAD 30,000. A minimum down payment of CAD 55,000, not the CAD 40,000 that a flat 5% on the whole price would suggest.
The insurance that kicks in below 20%
With less than 20% down, the mortgage needs insurance. It does not protect you: it protects the lender if you stop paying. The premium runs from 0.6% to 4.5% of the mortgage amount, and the smaller the down payment, the higher the percentage.
That insurance has a ceiling many people find out about late: it only exists for properties valued below CAD 1.5 million. Above that there is no insurance, and a 20% down payment stops being a choice.
The stress test
The lender does not assess your capacity at the rate it will charge you. It assesses at the higher of the contract rate plus 2 percentage points and 5.25%.
If the rate you were offered is 4.5%, approval is simulated at 6.5%. If it is 3.0%, it is simulated at 5.25%, because the floor is higher than 3.0% plus 2. The rule exists to test whether you could still carry the payment if conditions worsened, and it applies to both insured and uninsured mortgages.
In practice it reduces how much you can borrow. Planning from the advertised rate is the mistake that leads people to discover at approval that the house they viewed is out of reach.
The two ratios the lender calculates
Ratio | Limit | What goes into it |
GDS | up to 39% of gross income | Principal, interest, property taxes and heating |
TDS | up to 44% of gross income | Everything in GDS plus credit cards, car loans, student loans and other debt |
Look at the TDS: it is why paying off the car loan before applying usually raises your limit more than adding a few thousand to the down payment.
Add closing costs on top, which CMHC estimates at 1.5% to 4% of the purchase price. They are not part of the mortgage and have to be in cash on the day.
The three accounts that build a down payment
Account | How it works for a first home |
FHSA | CAD 8,000 a year, CAD 40,000 lifetime. The contribution is deductible like an RRSP and the withdrawal for the purchase is tax-free like a TFSA. Unused room carries forward up to 8,000 into the next year |
Home Buyers Plan | A withdrawal of up to CAD 60,000 from your RRSP, tax-free, repaid over 15 years |
TFSA | No usage restriction and nothing to repay. Withdrawn room comes back the following year |
The FHSA is the only one of the three that does both things at once: it cuts your tax on the way in and comes out tax-free. If you plan to buy in the next few years, opening the account already starts generating room, even if you have nothing to deposit yet.
A couple with two accounts doubles all of it: two FHSAs and two Home Buyers Plans.
Who counts as a first-time buyer
The definition is not literal. For the Home Buyers Plan, you are not considered a first-time home buyer if you lived in a home you owned at any point in the current calendar year or in the four preceding calendar years.
Which means someone who owned a home abroad and sold it, or who owned here and went back to renting, can qualify again after that window. Worth checking before assuming the door is closed.
What changes if you arrived from Brazil
Three points come up in almost every conversation with someone buying a first home after moving countries.
Credit history does not cross the border. Your score in Brazil does not exist here. The lender looks at Canadian history, and building it takes time. It is the most common reason for refusal among people with good income and a ready down payment.
RRSP room comes from income reported here. With no Canadian return filed, there is no room, and with no room there is no Home Buyers Plan. Anyone who arrived this year only starts building it from their first filed return, which we cover in our guide to your first tax return.
The property left behind enters the conversation twice. It counts toward the first-time buyer definition if you lived in it, and it counts toward the foreign property form from your second year of residency.
The order that works
- Build Canadian credit history. It is the slowest item on the list and the one money cannot accelerate.
- Open the FHSA, even without the full amount. Room starts counting from the day you open it.
- Cut consumer debt. The 44% TDS is where car loans and credit cards eat your limit.
- Do the maths at the stress test rate, not the advertised rate.
- Set aside closing costs, 1.5% to 4%, on top of the down payment.
- Get a pre-approval before viewing homes, so you know the real range.
The rate that decides is not the one you see
The conversation about buying a home revolves around the advertised rate, and it is the one number in the story that decides nothing on its own. What sets the size of your house is the combination of three things: the stress test rate, the two debt ratios, and the cash you have on closing day. None of them appears in the listing.
MB Tax Solutions works with individuals, self-employed professionals and businesses across Canada, in English and Portuguese, with offices in Toronto, Moncton, Montreal, Rio de Janeiro and Georgetown. See our tax planning service or talk to our team.
