12/13/2023
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Posted in Mortgages and Real Estate by Vanguard Realty | Back to Main Blog Page
Canada’s banking regulator confirmed it will leave the mortgage stress test for uninsured mortgages unchanged.
In its annual review, the Office of the Superintendent of Financial Institutions (OSFI) said the minimum qualifying rate (MQR) used by federally regulated lenders will remain the greater of 5.25% or the mortgage contract rate plus 200 basis points (2%).
OSFI oversees the mortgage stress test for uninsured mortgages—generally those with a down payment of more than 20%—while the Department of Finance is responsible for the stress test applied to insured mortgages, or those typically with a down payment of less than 20%.
OSFI said it is confident the current stress test will result in lower residential mortgage default rates than would otherwise be the case if lenders did not apply the MQR when originating mortgages for homeowners.
“The minimum qualifying rate for uninsured mortgages has produced a more resilient residential mortgage financing system characterized by low default and delinquency rates,” said OSFI head Peter Routledge. “Holding the MQR at its current rate helps ensure that lenders and borrowers effectively manage the risks associated with residential mortgages.”
What is the minimum qualifying rate?
OSFI’s stress test was first introduced in 2018 as part of its updated B-20 guidelines, which govern mortgage underwriting practices and procedures.
The stress test must be used by federally regulated lenders to qualify new uninsured mortgage borrowers and those wanting to switch lenders using the higher of their contracted mortgage rate plus 200 bps or 5.25%, whichever is higher. This is known as the minimum qualifying rate, or MQR. Insured mortgages don’t need to be re-stress tested when switching to a new lender, OSFI revealed in October.
Most mortgage rates currently available from the big banks and other national lenders are currently higher than 5.25%, meaning borrowers must prove they can afford payments based on a qualifying rate of 7.25% or more.
But with some mortgage rates now falling near or even below 5%, the minimum qualification rate of 5.25% could once again become more important.
Source: Canadian Mortgage Trends
First Time Home Buyers, Home Buyers, Mortgage Consumers, OSFI
