Effective November 21, 2024, mortgage lenders will no longer require borrowers to pass the Office of the Superintendent of Financial Institutions (OSFI) stress test to approve their mortgage renewal. It’s important to note that this only applies to straight switches of uninsured mortgages between lenders, meaning it applies solely to mortgage renewals.
What is the Mortgage Stress Test?
The OSFI stress test is a financial assessment used by lenders to determine if a borrower can handle their mortgage payments if interest rates rise. To pass the test, borrowers must prove they can afford their mortgage at a rate of either 5.25% or their contract rate plus 2%, whichever is higher. This ensures that borrowers have a buffer to manage potential increases in interest rates.
What do the changes mean as of November 21, 2024?
As of November 21, 2024, you can now compare lenders and secure the best rates that suit your current financial situation without needing to pass a stress test for mortgage renewals. This change removes one of the barriers when renewing your mortgage for another term, aiming to foster a more equitable and supportive market for homeowners.
Do borrowers still have to pass a stress test for insured mortgage renewals or switches?
In October 2023, the Canadian Finance Minister introduced a new Mortgage Charter that reinforced existing rules. It clarified that insured mortgages don’t need to go through the federal stress test again when switching lenders at renewal.
Some people thought OSFI had relaxed its rules, but that wasn’t the case. This requirement had always been in OSFI’s fine print, and they just brought it back into focus. This led to lenders needing to quickly adjust their mortgage approval processes.
What are the potential impacts of removing the stress test for new homebuyers or borrowers?
Removing the stress test could make it easier for buyers to qualify for loans, potentially increasing access to homeownership. However, there is a risk that borrowers might have trouble making their mortgage payments if interest rates go up.
Feel free to reach out if you have any questions or need further clarification.
