Canada’s bank regulator, The Office of the Superintendent of Financial Institutions (OSFI) announced on April 8, 2021, that it will restart a review of the stress test rate on uninsured mortgages.

If approved, the qualifying stress test rate will move higher from 4.79% to 5.25% or two percentage points above the market rate, whichever is higher.

How does this change by the OFSI impact you?

This change by the OSFI will have a large impact on all borrowers such as first-time home buyers who are already stretching to get into the housing market. Borrowers will have to prove they can get approved for credit products (mortgages, HELOC, etc) at the higher rate which will lower their borrowing power, regardless of what a lender is willing to lend them.

Homebuyers will face these more stringent mortgage stress test measures after June 1, 2021.

Why are these measures being implemented?

These proposed measures will make it harder to qualify for a home loan, which will reduce the pool of qualified borrowers, and ultimately help cool the housing market by bringing down some of the upward pressure on house prices.

Whether you’re a first-time home buyer, refinancing your home, buying an investment property or getting a HELOC (home equity line of credit), this change will affect everyone.

Ironically, those with high incomes and strong credit will continue to accumulate real estate.

OSFI Superintendent Jeremy Rudin said the higher floor rate is based on an average of the qualifying rate in the preceding 12 months leading up to the pandemic, adding that financial markets must be prepared for a return to pre-pandemic conditions—i.e., higher interest rates.

“The main thing we have to be ready for is an increase in mortgage rates to the pre-pandemic range,” he told reporters. “We have interest rates that are extraordinarily low, even by recent standards.”

If you are on the fence about getting into the real estate market, the best time is now. Rates are still relatively low and the new stress test measures have not gone into effect.

Contact me today to see how I can help with your financing needs.