TOPIC
Policy Update
Author
Yiming Han

OSFI clarifies policy updates to lift stress test for Insured Mortgage Transfers. The existing stress test for all insured mortgages (purchases, switches, renewals, or refinances) is the higher of:

• 5.25% (benchmark rate), OR

• Contract rate + 2%

 

Effective immediately, insured mortgage transfers are exempt from the stress test when switching lenders mid-term or on renewal! Insured transfers will now be qualified only at the contract rate, as long as:

• The loan amount does not increase; and

• The amortization schedule remains the same

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 What does this mean to borrowers? Let’s take a look at an example!

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Scenario

• Bob bought a home with < 20% down payment in 2019

• His income was $110,000/year

• His mortgage is now up for renewal on January 1st, 2024 with a $520,000 balance and 20-year amortization remaining 

• His mortgage is with Bank A, but Bank B is offering him a better rate at renewal at 5.39% 

 

Bob’s Concern

Rates have increased a lot, but his income has stayed the same. Can he even qualify to switch to a different lender?

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If Bank B had to stress test Bob at 7.39%, based on his income of $110,000, he wouldn't be able to qualify for the $520,000 mortgage balance. This would mean he would be stuck renewing his mortgage with Bank A. However, with the new policy change, Bob now has options!