Mortgage stress test requirement has been lifted for renewing borrowers who change lenders.
Canada’s banking regulator will no longer require banks to apply the mortgage stress test to borrowers looking to switch lenders. The Office of the Superintendent of Financial Institutions (OSFI) has confirmed that it plans to inform lenders of its decision to remove the expectation of applying the stress test to mortgage holders seeking to renew with a different lender.
The current minimum qualifying rate, or stress test, for uninsured mortgages is set at 5.25% or 2 percentage points above the actual mortgage rate offered, whichever is higher.
The stress test requires buyers to demonstrate that they can afford a mortgage rate two percent higher than the qualifying rate. Uninsured mortgages refer to those with a down payment of at least 20 percent.
OSFI’s new rule applies to straight switches of uninsured mortgages at renewal — meaning the borrower maintains the same amortization schedule and loan amount.
“There are two primary reasons for this change. First, we are listening to what we have heard from the industry and from Canadians about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal,” an OSFI spokesperson said.
“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.”
Mortgage brokers view this move as a positive step for the industry. “This is great news for Canadians with mortgages up for renewal,” said mortgage broker Ron Butler. While switching lenders remains a complex process, removing the stress test eliminates an “unnecessary” hurdle.
Because the stress test made it more difficult for borrowers to switch, their existing lender would often provide higher interest rates upon renewal, knowing their client was unlikely to move to a new lender, he said.
“Now, people will call a few lenders to see what their best interest rate is and come back to their existing lender who will then match the best offer,” Butler said. “Mortgage holders won’t have to change just to get a better deal.”
The more choice people have now, the more incentive it gives banks to provide the best possible pricing to consumers.
