Conditions seem ripe for a big, 50-point, interest rate cut by the Bank of Canada at its next setting later this month. But the federal banking regulator has confirmed it will be providing, more direct, mortgage relief.
The Office of the Superintendent of Financial Institutions (OSFI) says it is going to end the stress test for uninsured mortgage switches. The formal announcement is set for November 21.
The stress test, which was introduced at the beginning of 2018, requires borrowers with uninsured mortgages (i.e., a down payment of 20% or more) to qualify for their loan at the Bank of Canada’s five-year benchmark rate or their mortgage rate plus 2%, whichever is higher.
The upcoming change means borrowers who are making a straight swap of their existing mortgage from one lender to another – keeping the same loan amount and amortization schedule – will not have to requalify and pass the stress test.
Removing the stress test requirement answers a long-standing complaint that it discouraged – even prevented – borrowers from shopping for a new, cheaper lender at renewal time. OSFI says it is making the change based on feedback from the mortgage industry and Canadians.
In March the federal Competition Bureau recommended dropping the stress test, saying the policy was “not evenly applied.” OSFI all but admits the policy was wrong, saying the risks it had been intended to address “have not significantly materialized.”