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New Uninsured Mortgage Stress Test Likely on the Way

Canada’s top banking regular, the Office of the Superintendent of Financial Institutions (OSFI), proposes raising the mortgage stress test qualifying rate for an uninsured mortgage. In this article, we’ll look at what the stress test is, why it was introduced and how these changes could impact you.


What is the Mortgage Stress Test?

The mortgage stress is a test that you must pass to qualify for mortgage financing at a prime lender. Instead of using your actual mortgage payment in calculating how much mortgage you can qualify for, an inflated mortgage payment using the mortgage stress test rate is calculated and used.

The mortgage stress test was introduced several years back to ensure Canadians didn’t get in over their heads when borrowing mortgage money. The stress test ensures you can handle higher mortgage rates if/when they arrive. Generally speaking, you’re required to qualify at 2% plus your mortgage rate or the mortgage stress test rate, whichever is higher.

Why is OFSI Introducing These Changes?

Currently, the mortgage stress test rate is at 4.79 percent. Since the beginning of the pandemic, it has been falling over the last year due to the big banks cutting their posted mortgage rates. The mortgage stress test was introduced to ensure homeowners didn’t get in over their heads when buying a house. It was also introduced to ensure the real estate market didn’t get overheated.

However, if you’ve been reading the news headlines lately or you’ve been trying to buy a home, you know how competitive it is out there. 2020 was a record year for home sales. Home prices are sharply up across the country. This led to the regulator becoming concerned and introducing a new higher stress test for uninsured mortgages.

What is OSFI Proposing?

To cool the red hot real estate market, OSFI proposes increasing the mortgage stress test rate from its current 4.79 percent rate to 5.25 percent on uninsured mortgages.

The new higher stress test will affect anyone putting down 20 percent or more on purchasing a home. If you were looking to purchase a home at the maximum you could qualify for; you’re looking at about a 4 percent decrease in your maximum purchase price.

Although it looks likely the new higher stress-test rate will be implemented; it’s not set in stone. OSFI seeks submissions from stakeholders until May 7th, before the new rules come into place on June 1st.

Will These Changes Affect Me?

As mentioned, if you’re looking to buy a home at the maximum you qualify for, these changes could affect you. If your home purchase is closing before June 1st, it shouldn’t affect you. However, if your home closes on or after June 1st, these changes will likely impact you.

If you’re putting down less than 20 percent on a home, currently, you can still qualify at a lower rate of 4.79 percent. Will OSFI change that rate, too? It remains to be seen, although it wouldn’t surprise me if they do.

The Bottom Line

Are you confused about the new proposed mortgage rules? You’re not alone. Reach out to our mortgage experts today. Our experts can let you know how these new mortgage rules may or may not affect you.

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