Changes to Stress Test Rate for Insured Mortgages

Date Posted: February 19, 2020

Bill Morneau, Minister of Finance, has announced that the qualifying rate for the mortgage stress test will change effective April 6, 2020. Mr. Morneau said the aim is to make the stress test, which has drawn criticism for being onerous and inflexible, “more dynamic to market conditions,” while still keeping it intact. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate plus a 2% buffer which will be announced each Wednesday by the Bank of Canada for the following Monday.

“Federal officials had become concerned that the Bank of Canada rate, which stands at 5.19 per cent, was no longer tracking the market as well as it had. At that level, it sets the floor for the stress test at roughly 2.3 percentage points higher than the average five-year mortgage rate borrowers are actually paying.

By contrast, the new median-based benchmark is currently lower at 4.89 per cent as of Tuesday, according to OSFI, although it could change weekly. And mortgages will still be stress tested at a minimum of two percentage points above the client’s contract rate, according to OSFI.” (The Globe and Mail)

Following reviews by federal financial agencies, results indicated that a more dynamic qualifying rate would better adjust to the changes in the market. The Office of the Superintendent of Financial Institutions (OSFI) is also considering adopting this same measure for insurable and uninsured mortgages but has yet to announce any firm changes in the current policies. “Sound mortgage underwriting and B-20 contribute to financial stability throughout the economic cycle. Continually reviewing our prudential measures is part of an effective regulatory framework. This proposal aims to address the limitations of the current benchmark rate while preserving the integrity of the overall qualifying rate,” said Ben Gully, assistant superintendent, regulation (Mortgage Broker News).

More from the Government of Canada news release can be found here.

Read more from the OFSI announcement as well as their FAQ page.

Contact your Mortgage Broker today for more information.