Canada’s banking regulator will no longer require banks to apply the mortgage stress test to borrowers planning to switch lenders.
The Office of the Superintendent of Financial Institutions (OSFI) confirmed with the Star that OSFI intends to inform lenders that the regulator will end its expectation of applying the stress test to mortgage holders looking to renew with another lender. The Superintendent of Financial Institutions, Peter Routledge first confirmed the news with The Globe and Mail on Wednesday.
The minimum qualifying rate, or stress test, for uninsured mortgages is currently 5.25 per cent, or two percentage points higher than the actual mortgage rate being offered, whichever is higher.
In a stress test, buyers must prove they’re able to afford a mortgage rate two per cent higher than the qualifying mortgage rate. Uninsured mortgages are residential mortgages with a down payment of 20 per cent or more.
OSFI’s new rule is for straight switches of uninsured mortgages at renewal — a “straight switch” means the borrower will keep the same amortization schedule (length of time it takes to pay off the mortgage) and current loan amount.
“There are two primary reasons for this change. First, we are listening to what we have heard from industry and from Canadians about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal,” an OSFI spokesperson said in an email response to the Star.
“Second, when we look at the data over time, we have observed that the prudential risks that this was intended to address have not significantly materialized. As a prudential regulator we enable banks and lenders to compete and take reasonable risks.”
