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OSFI Resumes Its Stress Test Review

For those who think the 4.79% minimum qualifying rate (mortgage “stress test” rate) is too strict, here’s a breaking update. Tweaks to the often-criticized “stress test” are back on the table.

OSFI said today that it “will resume its policy work on the minimum qualifying rate for uninsured mortgages by issuing a new consultation tomorrow at noon (ET).”

“On January 24, 2020, OSFI indicated that it was reviewing the benchmark rate (or floor) used for qualifying uninsured mortgages,” the regulator said. “This consultation was suspended on March 13, 2020, in response to challenges posed by the COVID-19 pandemic.”

There’s no telling if OSFI will keep its same proposal from last time, which was expected to come into effect in spring 2020.

At the time, OSFI said its proposed new benchmark for uninsured mortgages would be “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.”

It added: “In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.” 

That was welcome news to people ticked off because the stress test kept them from qualifying for a mortgage. The existing policy’s high rate (which is based on inflated big-bank posted rates) forces more than 4 out of 5 borrowers in this country to prove they can afford payments as much as 200-300 basis points above the actual rate they pay.

Given the explosion in home values, however, it’s possible OSFI could be a bit more conservative with its new stress test rate. We’ll know more tomorrow afternoon.

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