Mortgage Qualification Rules
A shared reference for understanding mortgage qualification rates, debt-service ratios, down payments and mortgage-insurance estimates. Public rules and lender or insurer criteria are distinguished from the narrower calculation conventions used by OpenBook.
Key reference values
These are reference parameters for the situations described below, not universal lending criteria or approval thresholds for every mortgage.
| Parameter | Reference value |
|---|---|
| Qualifying rate | Higher of contract rate + 2 percentage points or 5.25% [1, 6] |
| CMHC debt-service limits | 39% GDS; 44% TDS [1] |
| Condominium fees included in ratios | 50% of the full fee [1] |
| Supported insured purchase price | Less than $1,500,000 [2, 7] |
| Ordinary / qualifying longer insured amortization | Up to 25 years / up to 30 years [2, 4] |
Qualifying rate and mortgage stress test
The qualifying rate is a calculation rate, not necessarily the interest rate charged on the loan. OSFI prescribes a minimum qualifying-rate framework for most newly underwritten uninsured mortgages at federally regulated lenders. CMHC’s insured-mortgage guidance uses the same higher-of comparison. These are different authorities; the matching formula does not make every lender or transaction subject to identical rules. [1, 6]
q = max(floor, contract rate + buffer)
With a 5.00% contract rate, a 2-percentage-point buffer and a 5.25% floor, q is 7.00%. The standard OpenBook scenario uses these parameters. Modified assumptions in Mortgage Qualification are scenario settings, not a lender policy. The qualifying payment is used for the ratios; the contract-rate payment describes the payment at the entered rate.
GDS, TDS and the costs they include
Gross Debt Service (GDS) compares housing costs with gross income. Total Debt Service (TDS) adds other debt payments. Use one time basis throughout: monthly costs divided by gross monthly income, or annual costs divided by annual income. The OpenBook calculations use monthly amounts. [1]
H = qualifying mortgage payment + annual property taxes / 12 + monthly heating + 0.50 × monthly condo fees
Y = gross annual household income / 12
GDS = H / Y TDS = (H + other monthly debt payments) / Y
CMHC’s principal-and-interest amount includes the financed insurance premium. Including half the condo fee in a ratio does not mean the household pays half the bill. CMHC also has particular rules for site/ground rent and debt-payment assessment; these should not be replaced with a household-budget assumption. [1]
The two OpenBook calculators accept other monthly debt payments as entered; they do not derive lender-specific payments from credit balances. Rental-income qualification is excluded. A low calculated ratio does not validate the income, debt amounts or property information supplied.
Minimum down payment and property scope
For ordinary CMHC homeowner purchases with one or two units, the published minimum equity is 5% of the first $500,000 and 10% of the remainder, with purchase/lending value below $1.5 million. Three- and four-unit owner-occupied properties have a 10% minimum-equity requirement and a lower maximum LTV. Those rules are not interchangeable. [2]
| Purchase price in the two-calculator model | Minimum down payment used |
|---|---|
| Up to $500,000 | 5% of purchase price |
| Above $500,000 and below $1,500,000 | $25,000 + 10% of the portion above $500,000 |
| $1,500,000 or more | 20%; no high-ratio insured scenario in this model |
The insured-price limit is exclusive: exactly $1,500,000 is outside the supported high-ratio insured range. The 20% treatment at or above that price is the ordinary uninsured boundary used here; it is not an insurance-eligibility determination. [2, 5, 7]
OpenBook’s two-calculator model is limited to an owner-occupied Canadian purchase with one or two residential units, including an individual condo, and a non-borrowed down payment. It uses purchase price as the property-value assumption. Lender or insurer valuation can differ. Savings, sale proceeds and a non-repayable gift are examples of traditional funding; special borrowed-down-payment products are not modelled. [2, 5]
Amortization, mortgage term and longer insured loans
Amortization is the scheduled repayment period; the mortgage term is the period covered by the current contract. One does not establish the other or a future renewal rate. [8]
CMHC Purchase ordinarily permits up to 25 years. Home Start permits up to 30 years for qualifying high-ratio purchases where at least one borrower meets its first-time-buyer definition or the home is newly built. The definitions contain conditions; a checkbox in an educational calculator does not establish eligibility. [2, 4]
Under OpenBook’s calculation model, an insured amortization above 300 months and up to 360 months requires the explicit longer-amortization eligibility assumption and the higher premium. The rule is not restricted to an input of exactly 30 years. Amortization must contain a whole number of months. The calculation does not model future renewals, a full eligibility interview or lender-specific exceptions.
OpenBook calculation conventions
The following formulas describe the two-calculator educational model, not every possible mortgage contract. For financed principal L, nominal annual rate j expressed as a decimal, and n amortization months:
i = (1 + j / 2)^(1 / 6) − 1
Monthly payment = L × i / [1 − (1 + i)^(−n)]
At zero interest, the payment is L / n. Use the assumed or contract rate for the corresponding payment, and the qualifying rate for the debt-service payment. Income, debts, property costs and purchase price must describe the same scenario date; the model does not project future income or property costs.
Home Affordability works backward from the lower GDS/TDS payment capacity, then checks purchase prices against the down payment, premium bands and supported mortgage boundaries. Taxes, heat and condo fees stay fixed as price changes. Mortgage Qualification tests the specified purchase and reports the two ratio comparisons. It does not provide a competing maximum-purchase-price result.
A binding constraint is the condition limiting the price, not necessarily GDS or TDS. Qualification headroom is measured in percentage points, not percentage change: 44.00% minus 39.02% is 4.98 percentage points. Calculations retain unrounded values; separately rounded components need not add exactly. An approximate maximum-price headline is not a separately re-tested price.
Example — Home Affordability
All amounts are Canadian dollars. Assume $120,000 gross annual income, $100,000 down, a 5.00% rate and 25-year amortization. Annual property taxes are $4,800; monthly heating is $150, condo fees $0 and other debt $600. Standard 39%/44% limits, a 5.25% floor and a 2-point buffer give a 7.00% qualifying rate.
Estimated maximum purchase price: $551,372.
| Mortgage estimate | Amount |
|---|---|
| Down payment | $100,000 |
| Mortgage before premium | $451,372 |
| Estimated insurance premium | $12,638 |
| Mortgage including premium | $464,010 |
| Monthly payment at 5.00% | $2,699 |
| Monthly payment at 7.00% for qualification | $3,250 |
| Measure | Result | Limit |
|---|---|---|
| GDS | 38.00% | 39.00% |
| TDS | 44.00% | 44.00% |
TDS limits this estimate. The base-mortgage LTV is about 81.86%, so the example uses a 2.80% premium. Figures are rounded from the unrounded price solution of about $551,371.71; the displayed price is an approximation, not a separately re-tested purchase price. [3]
Example — Mortgage Qualification
All amounts are Canadian dollars. Assume an $800,000 purchase, $200,000 down, a 5.00% contract rate and 25-year amortization. Gross annual income is $180,000 and annual property taxes are $6,000. Monthly heating is $150, condo fees $400 and other debt $800. Use the standard 39%/44% limits, 5.25% floor and 2-point buffer. The 25% down payment means no premium is added in this model.
| Mortgage and payments | Amount or rate |
|---|---|
| Mortgage | $600,000.00 |
| Monthly payment at the 5.00% contract rate | $3,489.63 |
| Qualifying rate | 7.00% |
| Monthly payment used for qualification | $4,202.49 |
Qualifying housing costs are $4,202.49 + $500 taxes + $150 heat + $200 (half the condo fee) = $5,052.49 per month.
| Measure | Result | Limit | Difference |
|---|---|---|---|
| GDS | 33.68% | 39.00% | 5.32 percentage points below |
| TDS | 39.02% | 44.00% | 4.98 percentage points below |
Both ratios are within the limits used in the example. TDS has less remaining headroom; this is a ratio comparison, not lender approval.
Renewal straight switches: two distinct provisions
A straight switch at renewal is different from a new purchase. Neither purchase calculator determines straight-switch eligibility.
OSFI uninsured straight switch. Its November 21, 2024 provision concerns an existing stand-alone, amortizing, non-readvanceable uninsured mortgage outside a combined loan plan, transferred between federally regulated institutions at renewal. Remaining contractual amortization does not increase. Up to $3,000 may be added to principal for transaction costs, but no equity is taken out. OSFI does not prescribe the MQR for that qualifying transfer; underwriting and due diligence continue. [9]
Finance Canada portfolio insurance. Its separate published parameters concern eligible low-ratio renewal switches from an originating federally regulated lender to a new lender. The loan was previously assessed against the MQR and the contractual amortization schedule continues. They also allow up to $3,000 for transaction costs, not equity withdrawal; other government-backed insurance requirements remain applicable. Do not treat these portfolio-insurance parameters as identical to OSFI’s institution-to-institution rule. [10]
What these references and calculations do not establish
Neither a ratio within its limit nor sufficient down payment establishes creditworthiness, income acceptability, property value, insurance eligibility, adequate documentation or lender approval. These calculations also do not assess personal payment comfort or a complete household budget.
The purchase model excludes rental-income qualification, non-owner-occupied properties, three- and four-unit rules, borrowed down payments, refinancing, insurance portability, premium credits and rebates, and lender-specific exceptions. It excludes cash-to-close items, including land-transfer tax, legal and appraisal/inspection costs, adjustments, moving costs and applicable provincial tax on premiums. Home insurance, maintenance, repairs, other utilities and future renewal-rate changes are not modelled.
OpenBook provides educational information, not mortgage, financial, legal, tax or real-estate advice. Sources, rules and practices may change; data, interpretations, formulas and results may contain errors or omissions. Accuracy, completeness, currency and applicability to an individual situation are not guaranteed. The linked official sources provide further information on the relevant rules.
Calculateurs connexes
Related Articles
Related References
Mortgage: Renew, Switch, Refinance, Prepay
Housing and Education Programs — related program overview
Bank of Canada Sources — interest-rate and economic-data context
Home Buyers’ Plan Values — separate down-payment funding context
Sources and Further Reading
[1] CMHC — Calculating GDS/TDS
[2] CMHC — Purchase: property and minimum-equity requirements
[3] CMHC — Mortgage loan insurance premiums
[4] CMHC — Home Start: longer amortization and premium schedule
[5] CMHC — What is mortgage loan insurance?
[6] OSFI — Minimum qualifying rate for uninsured mortgages
[7] Department of Finance Canada — Mortgage reform technical parameters (2024)
[8] FCAC — Preparing to get a mortgage
[9] OSFI — Uninsured mortgage straight switches
[10] Department of Finance Canada — Straight switches and portfolio insurance