Superintendent Peter Routledge confirmed that OSFI will formally announce this change on November 21, 2024, as part of the regulator’s quarterly release pilot, with the change coming into effect that same day.
This change will make it easier for borrowers to switch lenders at renewal without having to prove they can afford their mortgage at a higher rate.
The stress test, introduced in January 2018 under OSFI’s B-20 Guideline, required borrowers with uninsured mortgages—those with a down payment of 20% or more—to qualify at the higher of the Bank of Canada’s five-year benchmark rate or their mortgage rate plus 2%. This policy aimed to ensure borrowers could handle potential future rate increases.
The upcoming change applies specifically to straight switches of uninsured mortgages, where borrowers move to a new lender but maintain the same loan amount and amortization schedule.
Why the change?
This policy shift marks a departure from OSFI’s stance earlier this year. As recently as June, the regulator had doubled down on maintaining the stress test for uninsured mortgage switches, citing the need for sound risk management.
However, OSFI told Canadian Mortgage Trends there are two key reasons behind its reversal.
“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,” a 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,” they added. “As a prudential regulator we enable banks and lenders to compete and take reasonable risks.”
The Competition Bureau had also raised concerns about the fairness of the stress test. In March, it recommended allowing uninsured mortgage borrowers to switch between lenders without undergoing the stress test, noting that the policy was “not applied evenly” across borrowers.
This change ensures that homeowners can secure the best rate that fits their financial needs without unnecessary barriers, giving them greater choice and flexibility.
OSFI says it is working with federally regulated financial institutions (FRFIs) to ensure a smooth transition for this rule change, which is expected to increase competition among lenders while providing more options for borrowers with uninsured mortgages.
What this means for borrowers
For borrowers with uninsured mortgages approaching renewal, this change eliminates a significant obstacle.
Without the stress test, borrowers will be able to shop around for better rates without the risk of being disqualified, potentially easing the financial strain in a higher-rate environment.
“This is all about fairness to borrowers,” Ron Butler of Butler Mortgage told CMT. “It never made any sense to apply a stress test on a renewal,” he added, noting that the current lender wouldn’t even typically check if the borrower is still employed at the time of renewal. New lenders, however, fully underwrite switch mortgages, making the stress test redundant in these cases.
“This makes getting a better rate at renewal more possible,” he said.
Lauren van den Berg, CEO & President of Mortgage Professionals Canada (MPC), agreed, emphasizing how important this policy change is for homeowners, calling it a “significant win for Canadians.”
“This change ensures that homeowners can secure the best rate that fits their financial needs without unnecessary barriers, giving them greater choice and flexibility,” she said. “It also encourages healthy competition among lenders, leading to better options for borrowers.”
MPC had long advocated for the removal of the stress test on uninsured mortgage renewals, and the association is “thrilled to see it come to fruition,” van den Berg added, noting the change will support a more balanced and competitive market for homeowners across Canada.
Editor's pick Lauren van den Berg mortgage professionals canada mpc OSFI OSFI mortgage stress test Peter Routledge ron butler stress test stress test changes stress test for uninsured mortgages uninsured mortgage stress test
Last modified: September 26, 2024
They’re listening??????????
If they listened, this would be a 6+ year old article.
Listening? lol
Let’s hope they roll back some of those Basel III ideas that no other country in the world is seriously considering implementing except for the country with the safest banks (and least competition – meaning consumers consistently get the **** end of the stick).
Listening… that’s cute