OSFI sees mortgage stress test ‘imbalance’ at renewal but rules not changing yet
Canada’s banking regulator conceded to members of Parliament that there’s an “imbalance” in how the mortgage stress test is applied for some homeowners renewing their terms, but stood by the practice.
Peter Routledge, the Superintendent of Financial Institutions, spoke to the standing committee on finance Tuesday. His office, OSFI, is in charge of applying the minimum qualifying rate for uninsured mortgages, colloquially called the mortgage stress test, while the finance minister oversees insured mortgages.
The stress test currently requires borrowers to qualify for a mortgage at a rate of 5.25 per cent or two per cent above the contract rate, whichever is higher, in order to prove they could handle higher monthly payments if the Bank of Canada’s policy rate rose rapidly. Passing the stress test is viewed as a prudent measure to safeguard lenders offering mortgage loans, but limits the size of mortgage and overall home value an individual can afford.
Routledge was asked for his response to a report from the Competition Bureau in March, which called on OSFI to drop the stress test for Canadians renewing their mortgages. Doing so would make it easier for homeowners to shop around for cheaper rates, forcing lenders to compete more sharply with one another to win business, the competition watchdog argued.
Canadians do not have to re-pass the stress test if they’re re-upping with their existing lender at renewal, regardless of whether they have an insured or uninsured mortgage.
If switching lenders at renewal time, however, the minimum qualifying rate only applies on uninsured mortgages. Insured mortgages are not subject to the stress test when it comes time to renew, something the federal government affirmed in its Canadian
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