The stress test isn't a separate hurdle bolted onto a mortgage application — it's the rate the ratios actually get calculated at. Quote a client their contract rate and run the numbers there instead, and the pre-approval conversation is built on a number the file may never clear. That gap, more than almost anything else, is what turns a confident client into a confused one two weeks into a search.
This worksheet is the five-step sequence to run on every file: understand the Minimum Qualifying Rate (MQR) rule, build the actual qualifying rate for a given contract rate, run GDS and TDS against that rate rather than the advertised one, work a full example so the mechanics are concrete, and finish with the short pre-submission ritual that catches the errors that recur most.
Step 1. The Minimum Qualifying Rate rule, plainly
Under OSFI's Guideline B-20, federally regulated lenders must qualify a borrower at the greater of the contract rate plus 2%, or 5.25% — whichever number is higher, not whichever number is more convenient for the deal. This single rule is why a client's actual mortgage payment and their qualifying payment are almost always two different numbers.
The rule in one line: add 2% to whatever rate the client is actually being offered, then compare that result to 5.25%. Use the larger of the two as the qualifying rate for every ratio calculation that follows.
Step 2. Build the qualifying rate for a given contract rate
- 01Take the contract rate the client is actually being offered.
- 02Add 2 percentage points to it.
- 03Compare that result to 5.25%.
- 04Use whichever of the two numbers is higher — that's the qualifying rate for every GDS/TDS calculation on this file.
| Contract rate offered | Contract rate + 2% | Qualifying rate used |
|---|---|---|
| 2.99% | 4.99% | 5.25% (the floor applies) |
| 4.49% | 6.49% | 6.49% (above the floor) |
| 5.50% | 7.50% | 7.50% (above the floor) |
Notice that at low contract rates, the 5.25% floor is what actually binds — the qualifying rate doesn't move even if the contract rate drops further. At higher contract rates, the contract-plus-2% calculation takes over. Both branches of the rule matter; skipping the comparison and assuming one always applies is a common, avoidable error.
Step 3. Run GDS and TDS at the qualifying rate, not the contract rate
GDS (Gross Debt Service) is housing costs — principal, interest, property tax, heat, and a share of condo fees where applicable — divided by gross income. TDS (Total Debt Service) adds every other debt payment on top of housing costs, divided by the same gross income. For insured mortgages, the standard maximums are 39% GDS and 44% TDS; both ratios must be calculated using the qualifying rate from Step 2, not the rate the client will actually pay.
The mistake this catches: a file quoted and mentally qualified at the contract rate can look comfortably under both ceilings, then fail one or both the moment the qualifying rate is applied correctly. Always run the ratios at the higher rate first.
Step 4. A worked example, start to finish
The figures below are illustrative only, built to show the mechanics clearly.
An applicant earns $96,000 gross annually ($8,000 per month) and is offered a contract rate of 4.79%. The qualifying rate is 4.79% + 2% = 6.79%, which is above the 5.25% floor, so 6.79% is used. At that qualifying rate, the estimated monthly housing cost (principal, interest, property tax, and heat) works out to $2,650. The applicant also carries a $450 monthly car loan payment and a $150 minimum credit card payment.
| Calculation | Amount | Ratio |
|---|---|---|
| GDS: housing cost ÷ gross monthly income | $2,650 ÷ $8,000 | 33.1% |
| TDS: (housing cost + car loan + credit card) ÷ gross monthly income | $3,250 ÷ $8,000 | 40.6% |
Both ratios clear the insured maximums of 39% GDS and 44% TDS, even calculated at the higher, stress-tested rate — which means this file supports the deal at the qualifying rate, not just at the rate the client will actually pay. That's the confirmation to have in hand before a pre-approval conversation, not after.
Step 5. The errors that recur
- →Ratios calculated at the contract rate instead of the qualifying rate — the single most common error, and the one that misleads clients the most.
- →Gross income used inconsistently — mixing a gross figure in one ratio with a net or averaged figure in another.
- →Condo fees omitted or miscounted where the lender requires a share to be included in GDS.
- →Heat costs left out entirely, understating GDS even when every other input is correct.
- →Debts on the application not matching the credit bureau, which changes TDS after the fact and can flip an approval mid-file.
A five-minute pre-submission ritual
Before any file goes to a lender, run this short check: recompute the qualifying rate from the actual contract rate being offered; recompute GDS and TDS from source documents, not from whatever was typed in at intake; confirm every debt on the credit bureau appears in the TDS calculation; and confirm the ratios were run against the insured maximums that actually apply to this deal. Five minutes here prevents a resubmission cycle that costs considerably more than five minutes later.
This is exactly the kind of repeatable calculation Treadstone's AI underwriting is being built to run in seconds rather than minutes, currently in early access with an email waitlist. For a human fulfillment team running this check on files today, see Treadstone's fulfillment services. For more worked ratio examples across different income types, see GDS/TDS Worked Examples.