You negotiate a rate, you get an answer, and the approved amount is lower than you expected. There’s a name for why: the stress test. You don’t qualify at the rate you’re offered, but at that rate plus two percentage points, or at 5.25%, whichever is higher.
How the calculation works
The lender takes your offered rate and adds two points. It compares the result with 5.25% and keeps the higher figure. Your monthly payment is calculated at that hypothetical rate, then checked against the debt-service ratios: 39% GDS and 44% TDS.
Put differently, your file has to hold up at a rate you’ll never pay. It’s a safety margin imposed since 2018 to protect borrowers against a future increase.
What it removes from your budget
The effect is far from theoretical. Qualifying two points above your real rate typically cuts the eligible amount by 15% to 20%. On a $500,000 budget, that often means tens of thousands of dollars of capacity gone.
A preapproval issued without the full test can therefore give a misleading figure. The number that counts is the one that passed the test, not what an online calculator shows.
What you still control
The test applies to everyone, but your margin doesn’t depend on it alone. Three levers really move: cutting a monthly debt payment, lengthening the amortization, or raising the down payment.
The first is usually the fastest. Clearing a $400 monthly car payment frees more borrowing capacity than an equivalent raise would, because the calculation looks at your monthly obligations before your gross income.
One exception worth knowing
If you renew with your current lender without changing the amount borrowed, the test generally doesn’t apply: a simple renewal doesn’t require requalification. It comes back as soon as you switch lenders or refinance. That distinction often changes the strategy for a borrower whose situation has weakened.