OSFI relents on stress tests for uninsured mortgages when lender switched at renewal
After rejecting a call by Canada’s Competition Bureau to treat mortgage stress testing equally at renewal, regardless of whether a borrower stays with the same financial institution or switches to a new one, the country’s top banking regulator has had a change of heart.
Quinn Watson, manager of communications and parliamentary affairs at the Office of the Superintendent of Financial Institutions, said Wednesday that the regulator plans to inform the banking industry formally in November that “straight switches” of an uninsured mortgage to a new financial institution will not require the new lender to assess the borrower using the minimum qualifying rate stress test. These switches must be on the current amortization schedule and loan amount, he said.
The qualifying rate for an uninsured mortgage is the contract rate plus two percentage points, or 5.25 per cent, whichever is greater, and was put in place to help ensure borrowers could handle an increase in interest rates or an higher household expenses over the mortgage period.
Industry players had complained about the imbalance that required the stress test to be applied again when changing banks but not when remaining with the same financial institution at renewal time. Moreover, in 2023, the Department of Finance clarified that insured mortgages did not need to pass the stress test again if the borrower switched to a different lender at renewal time. In March, the federal Competition Bureau weighed in, saying that those with uninsured mortgages should be able to switch between federally regulated financial institutions without being subjected again to the stress test.
“When consumers renew their mortgages, their ability to switch to a competitive mortgage offer is
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