New minimum qualifying rate for uninsured mortgages proposed

The Office of the Superintendent of Financial Institutions (OSFI) began consultation on April 7, 2021 on a proposed increase to the minimum qualifying rate for uninsured mortgages.

The federal agency is looking to make the qualifying rate for uninsured mortgages the higher of the mortgage contract rate plus two per cent or 5.25 per cent as a minimum floor.

The stress test is currently set as the higher of the contract rate plus two per cent, or the prevailing benchmark rate (4.79 per cent). The proposed 5.25 per cent rate was the prevailing average benchmark in the 12 months leading up to the pandemic.

OSFI also wants to revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment.

“The current Canadian housing market conditions have the potential to put lenders at increased financial risk. OSFI is taking proactive action at this time so that banks will continue to be resilient,” said OSFI in a release.“

In a busy, competitive market like we’re seeing today, it’s critical that home buyers continue to do their due diligence and consult with their REALTOR®, mortgage advisor, home inspector and other professionals to ensure they’re identifying and mitigating risks, assessing the available information and always making responsible borrowing and buying decisions,” said Taylor Biggar, Chair, Real Estate Board of Greater Vancouver.“

Buying a home is a significant life decision. Don’t get swept up in the pace of the market, always take the time to get professional advice, do your due diligence, and make decisions after careful consideration.”

OSFI is asking for feedback on this proposed qualifying rate by email to B.20@osfi-bsif.gc.ca before May 7.

The final amendments to the qualifying rate for uninsured mortgages will be communicated by May 24 and will come into force on June 1.

“The more stringent stress test will modestly temper some demand pressures if enacted, particularly for down payment constrained buyers including first time owners,” said Bryan Yu, chief economist with Central 1.

Click here for more information on this proposed change.