Canada’s banking regulator has proposed changes that would strengthen the stress test applied to uninsured mortgages.
The Office of the Superintendent of Financial Institutions (OSFI) unveiled its proposed changes which would require borrowers applying for uninsured mortgages – typically those with more than a 20% down payment – to qualify at their mortgage contract rate plus two percentage points or 5.25%, whichever is higher.
The stress test currently has a minimum qualifying rate of 4.49%, nearly 50 basis points lower.
Additionally, OSFI said it plans to “revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment.”
OSFI Superintendent Jeremy Rudin said the higher floor rate is based on an average of the qualifying rate in the preceding 12 months leading up to the pandemic, adding that financial markets must be prepared for a return to pre-pandemic conditions – i.e., higher interest rates.
“The main thing we have to be ready for is an increase in mortgage rates to the pre-pandemic range,” he told reporters. “We have interest rates that are extraordinarily low, even by recent standards.”
It’s estimated that this proposal would reduce purchasing power for uninsured borrowers by between 4% and 4.5%.
There’s no word yet if changes to the insured mortgage stress test will be forthcoming as well. But the Minister of Finance, who overseas the stress test applied to insured mortgages, said this: “We will continue to monitor housing conditions across the country. To inform potential steps the government may take, we will closely examine the results of the consultation announced by the Superintendent of Financial Institutions.”
The public is invited to provide feedback to OSFI via B.email@example.com, which will be accepted up to May 7, 2021. OSFI will then communicate some of that feedback and any final amendments to the qualifying rate by May 24, 2021, prior to the new stress test taking effect on June 1, 2021.
Questions about the changes to the stress test? Wondering how this will affect you? Contact a One Link Mortgage Broker today at 204-954-7620 or firstname.lastname@example.org for a no obligation review of your mortgage options.
Source: Canadian Mortgage Trends – Steve Huebl