Update: Proposed 2020 Mortgage Stress Test Relief Canceled

Mortgage Stress Test 2020 Changes

If you where planning on taking advantage of the upcoming new qualification rules unfortunately you will have to wait longer. Changes to the federal mortgage stress test, due to come into force April 6, have been suspended, the Office of the Superintendent of Financial Institutions (OSFI) has announced. Following the Bank of Canada’s emergency interest rate cut on March 13 of 50 basis points, the second such cut in nine days in response to COVID-19, OSFI has suspended the change indefinitely.

I will update this as news becomes available after the COVID-19 pandemic.

A History of the Mortgage Stress Test:

• On October 17 2016 with housing prices at an all time high the Canadian mortgage stress was born. The purpose of the stress test is to ensure all home owners could handle their mortgage payments in the event of an increase in interest rates. This change made all insured and insurable mortgages required to be approved at the 5-year benchmark rate which was 5.34% at the time.

• The following October the government unveiled the final changes and implemented B-20 which required all uninsured mortgages to also qualify at the greater of Bank of Canada’s benchmark rate or the mortgage contract rate +2%. Since then the most major players in the mortgage & real estate industry have been working hard lobbying to have those rules loosened.

• On July 19 2019 the government lowered the benchmark rate to 5.19% but this was still not enough.

• On February 18th 2020 Canadian Finance Minister Bill Morneau announced that the Canadian government would be relaxing the mortgage qualification rules helping Canadians qualify for a little more mortgage.

• On March 13 2019 due to emergengy rate cuts cause by the COVID-19 outbreak OSFI suspends stress test qualification changes indefinatly.

The Original Stress Test Relief Plan for April 6 Details

These changes only affect insured or insurable mortgages No changes to uninsured mortgages have been announced yet. - Click here to learn more about these types of mortgages

How will borrowers qualify using the new mortgage stress test?

The new rules is a little more complicated as a formula will be used to calculate the stress test rate each Wednesday. This number will be determined by finding the average rate of insured mortgages from the previous week plus 2%.

Average weekly insured fixed rate +2% is a new term but based on current rates could be as low as 4.69% which is 0.50% lower than the Bank of Canada’s benchmark qualification rate

The lower qualifying rate means a borrower could qualify for 8%-10% more mortgage money.

Click here for the full ministry of finance press release.

These changes appear like a positive step in the right direction designed to give buyers the ability to compete in the fast paced GTA marketplace with no clear signs of a slowdown in the near future.

Please feel free to contact me anytime for clarification on this or any other mortgage related inquires.