Stress Test Increase

It would appear that qualifying for mortgages when you have 20% down or more is going to get a bit more “stressful” on June 1st, 2021.

This the date that OSFI has planned for its proposal for a tougher minimum qualifying rate for uninsured mortgages to be in force. As planned, homebuyers/owners will need to qualify as if their mortgage rate was 5.25 %, or two per cent above than their actual contract rate, whichever is higher.

With variable interest rates currently hovering around 1.5%, qualifying at a stress test rate at 3.75% above a contract rate seems a bit outrageous. This new proposal rate is almost 50 BPS higher than the current stress test rate of 4.79%.

While (OSFI) superintendent Jeremy Rudin has said that the change was necessary to ready the market for the end of the pandemic. Paul Taylor, president and CEO of Mortgage Professionals Canada suggests that “Increasing the qualifying rate by another almost 50 basis points will only serve to disqualify more aspiring middle-class Canadians and would-be first-time buyers. ”

OSFI’s proposal would theoretically cut borrowers’ homebuying power by roughly 4%, so not a massive decrease however this could very well impact pre-approved borrowers who are near the maximum qualifying ratio’s.

If you are putting down 20% or more, be sure to reconnect with your mortgage broker who can retest to see if your previous purchasing power at 4.79% still fits with the proposed increase. OSFI says it “will communicate final amendments to the qualifying rate for uninsured mortgages in Guideline B-20 by May 24, 2021, with a coming into force date of June 1, 2021.”

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