April 8, 2021, by Jordan Press, Canadian Press.
The federal banking regulator is proposing increased requirements to the stress test facing homebuyers with uninsured mortgages as it looks ahead to a return to pre-pandemic financial conditions with higher interest rates.
The proposal from the Office of the Superintendent of Financial Institutions would set the qualifying rate for uninsured mortgages at the contracted rate plus two percentage points or 5.25%, whichever is higher. Thatâ€™s a change from the current rules of the bank rate plus two percentage points or the Bank of Canadaâ€™s five-year benchmark rate, which currently sits at 4.79%.
Any buyer whose down payment on a home is less than one-fifth of the purchase price must undergo the stress test to demonstrate they could still afford mortgage payments in a higher rate environment. The measure adds a margin of safety for borrowers.
â€œWe want to make sure that when the mortgages that are being taken today renew in three, four or five years, that lenders are protected so that borrowers are well-positioned to be able to service those debts and safeguard the stability of the financial system,â€ said Superintendent Jeremy Rudin.
The proposed rate of 5.25% was the average benchmark rate in the 12 months leading up to the pandemic. It will now be subject to a new round of consultations over the coming weeks with a final decision coming into force on June 1.
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