Canadian mortgage holders looking to renew their home loan got some good news last month as the national banking regulator confirmed that it will be discontinuing a requirement that made it harder to change lenders.
The Office of the Superintendent of Financial Institutions (OSFI) will no longer require lenders to apply a financial stress test that uninsured borrowers must pass if they want to switch lenders upon renewal of their mortgage.
The financial stress test requires borrowers to prove they could afford to make their payments if interest rates increase by having them qualify for a rate higher than their contract rate—either 5.25%, or their contract rate plus 2%, whichever is higher.
Mortgage Stress Test
As a result, as of November 21, 2024, all mortgage holders switching to a new lender upon renewal will be exempt from the financial stress test if their mortgage amount and amortization doesn’t change.
Insured borrowers, who have smaller down payments, less equity and have taken out mandatory mortgage insurance, have been exempt from the stress test requirement since January 2024.
OSFI said last week that the policy change was intended to address an “imbalance” between how insured and uninsured borrowers are treated at renewal.
Canada’s Competition Bureau recommended in March that OSFI should remove the policy as it wasn’t being applied evenly, and instead allow uninsured mortgage borrowers to switch between banks without undergoing a stress test.
OSFI added that the move is not expected to increase instability in the Canadian mortgage market, as data shows the risks that the financial stress test was intended to address “have not significantly materialized.”
If you have questions about the real estate market or need assistance with property transactions, contact the legal experts at Clark Woods LLP at 604-227-9153 today.