OSFI’s stress test on mortgage switches ends November 21: What you need to know.
Starting November 22, certain mortgage borrowers will find it easier to switch lenders, thanks to the removal of the requirement to qualify at a higher stress test rate.
OSFI, Canada’s banking regulator, announced in September that it would remove the Minimum Qualifying Rate (MQR) requirement for straight switches of uninsured mortgages effective November 21, 2024.
- WHAT’S A STRAIGHT SWITCH? A straight switch refers to transferring a mortgage from one lender to another without increasing the loan amount.
- WHAT’S AN UNINSURED MORTGAGE? An uninsured mortgage is a home loan that doesn’t have mortgage default insurance. This typically applies to loans with a down payment of 20% or more.
Under the current requirements, borrowers wanting to switch lenders had to prove they could afford payments based on a re-qualification at an interest rate two percentage points above their contract rate. This limited their options and reduced their negotiating power, especially if their financial situation had deteriorated.
The move by OSFI is seen as a win for mortgage borrowers, offering more flexibility to switch lenders in search of better rates or more favourable terms. It also comes at a critical time for Canadian homeowners, with roughly 70% of all outstanding mortgages expected to come up for renewal by the end of 2026.
With mortgages originated between 2020 and 2022 facing payment increases of about 40%, competition is expected to intensify as lenders vie for new business and work to retain their existing clients.
The change was driven by industry feedback over the imbalance between insured and uninsured mortgagors at renewal—since insured borrowers don’t have to re-qualify at the stress test when switching—and the fact that expected risks had not materialized.
“We have observed that the prudential risks that this was intended to address have not significantly materialized,” OSFI said. “As a prudential regulator, we enable banks and lenders to compete and take reasonable risks.”
Lenders have reportedly received no guidance from OSFI, beyond its public statements, on how to proceed with the new requirements. However, OSFI has scheduled calls with industry stakeholders and the media on Thursday as part of its quarterly release schedule.
