Skip to main content

“I am a Canadian, free to speak without fear, free to worship in my own way, free to stand for what I think right, free to oppose what I believe wrong, or free to choose those who shall govern my country. This heritage of freedom I pledge to uphold for myself and all mankind.” ~~ John G. Diefenbaker

STEVE HUEBL -- Borrowers, with insured mortgages, will need to prove they can afford monthly payment based on the weekly median 5-year fixed insured rate plus 2%

FIRST PUBLISHED in Canadian Mortgage Trends

The federal government announced on Tuesday it will be changing the benchmark qualifying rate used for Canada’s insured mortgage stress test.

The change, which will take effect April 6, 2020, means borrowers with insured mortgages (typically those with less than 20% equity) will need to prove they can afford monthly mortgage payment based on a rate equal to the weekly median 5-year fixed insured mortgage rate plus 2%.

The Department of Finance (DoF) confirmed that rate would currently equal 4.89%, 30 basis points less than today’s benchmark qualifying rate of 5.19%, which is based on the Big 6 banks’ posted 5-year fixed rates.

Critics say the big banks have been keeping their 5-year fixed posted rates artificially high since they are used in setting prepayment penalties. But with mortgage rates falling since last year, the mortgage stress test has been increasingly out of sync with the actual contract rates consumers are securing.

This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions,” the DoF said in its announcement.

The news comes following a review of the mortgage stress test that was ordered by Prime Minister Justin Trudeau in December to explore recommendations from financial institutions to make the stress test more “dynamic.”

Changes to the Uninsured Stress Test Rate Coming Too?

At the same time, the Office of the Superintendent of Financial Institutions (OSFI) delivered its own announcement that it is considering the same benchmark rate for its stress test on uninsured mortgages (those with more than 20% down payment).

The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates,” OSFI said in its release.

The move was preceded by hints from OSFI’s Assistant Superintendent, Ben Gully, who said in a recent speech recently that “the posted rate is not playing the role that we intended.” He added that the “difference between the average contract rate and the benchmark has been widening more recently, suggesting that the benchmark is less responsive to market changes than when it was first proposed.”

OSFI said it is currently accepting input from stakeholders by email until March 17, 2020.

Industry Reaction to the Stress Test Change

Mortgage Professionals Canada (MPC) has been calling for the stress test rates to be uncoupled from the Bank of Canada’s posted 5-year fixed rate since the insured stress test was introduced in 2016. The association welcomed the announcement, saying the use of a floating rate will make the stress test more dynamic and responsive to changing markets and bond rates.

We thank the government for acknowledging this issue and making these changes,” Paul Taylor, President and CEO of MPC, wrote in an email to membership.

We do, however, still consider a two percent (2%) buffer to be an onerous test level given the economic realities globally”.

Taylor said the association will continue to ask for additional support measures for those still struggling to pass the stress test.

Included in our asks will be the reintroduction of an insurable 30-year amortization for first-time buyers, and increases in the income maximum multipliers under the newly introduced First Time Home Buyers Incentive Plan,” he said.

While industry reaction has so far been favourable, some said there were likely ulterior motives for the sudden change in policy.

It’s a political move. The government said they would do ‘something’ about high-ratio buyers in the last election, so now they have,” Ron Butler of Butler Mortgage told CMT. “I suppose if the ‘average rate’ drops enough to produce a 4.39% qualifying rate, then we will see some real changes.”

As it stands, Butler estimates the 30-basis point drop in the qualifying rate will increase the purchasing power for insured borrowers by around 5%.

Someone who qualified for a $500K mortgage yesterday will qualify for $525K in April,” he said.

Steve Huebl is a graduate of Ryerson University's School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.

Copyright © 2019 Canadian Mortgage Trends


Popular posts from this blog

THE SIDEWINDER -- Just quit your constant damned whining and do something positive about it

  Living in a democracy is a wonderful thing, but it comes with responsibilities such as voting and being involved. When the dust settled on Saturdays (October 24 th ) BC election, less than two thirds of the eligible voters * took the time to vote - but the loudest bitchers will probably be among the more than one third of voters who sat on their asses and complained about how all politicians are crooks, etc. How many of you constant whiners have ever done anything close to becoming involved; or do you just like sniveling to hear your own voice? Are you one the arseholes who likes to take advantage of everything our democracy has to offer, without ever contributing anything? And I don't want to listen to your crap about paying taxes, blah, blah, blah. There's more to making democracy work than simply voting and then sitting back and let others carry the ball for you. Too many people seem unwilling to get involved - and follow-up - to make sure elected po

AARON GUNN -- He is, at his core, an ideologue, meaning the facts of any particular issue don’t actually matter

Ben Isitt - City Councillor and Regional Director Victoria City Council and its resident-genius Ben Isitt is back with another dumb idea. Introducing a motion to ban the horse-drawn carriages that have coloured Victoria’s downtown streets for decades, calling them “an outdated mode of transportation”. Are you serious?   No one is actually commuting by horse and carriage. They are here for tourists and residents alike to interact with world-class animals and discover the magic and history of our provincial capital. It’s part of what gives Victoria its charm. And the truth is these horses are treated better than anywhere else in the world. They probably live better lives than many British Columbians.   And talk to anyone who works with these horses and they’ll all tell you the exact same thing: this is what the horses love to do. This is what they were bred for and trained for. This is what gives their lives purpose and meaning. But maybe we shouldn’t be su


I have just struggled through Cheryl Ashlie's column ( MacDuff’s Call: A political novice with a sizeable ego ), in the Sept. 22 edition of The Maple Ridge News. To say the least, Ashlie's comments are naive and show just how totally out of touch she has become with political reality. Ashlie lauds the decision of Darryl Plecas to accept John Horgan's invitation to become the Speaker of the House, a move described by almost everyone else as self-serving and a betrayal of the trust of the constituents who voted for him. Ashlie claims Plecas' turncoat move will help provide good governance but in making this claim, she fails to explain how he will achieve this lofty goal.


Show more