No change to the Qualifying Rate or Stress Test Rate 5.25%

General Gemma Riley-Laurin 20 Dec

Having introduced a much-publicized hike to the qualifying rate for uninsured mortgages at the beginning of June, Canada’s banking regulator announced no further changes in its December update.

The Office of the Superintendent of Financial Institutions (OSFI) said in a press release that it was holding the stress test rate at 5.25% or the contract rate plus 2% – whichever is higher.

That statement said that in an environment of increased household debt and continuing low interest rates, the body believed the maintenance of the rate at its current level was the right move.

Superintendent Peter Routledge indicated that the Office was closely monitoring the likely rising interest rate environment of 2022, highlighting the importance of strong and stable underwriting in an ever-evolving economic landscape.

“Sound mortgage underwriting is critical for maintaining the stability of the financial system,” he said. “This is especially true now when changing conditions such as potentially rising interest rates could make repaying mortgages more difficult in the future.”

OSFI’s statement followed its scheduled review of the minimum qualifying rate, which takes place every December. Its proposal to increase that stress test was announced in April and implemented in June, with the institution citing the potential financial risk posed by the country’s housing market as the reason for that hike.

The body had already indicated in January 2020 that it was reviewing the benchmark used for qualifying uninsured mortgages, with that consultation suspended less than two months later as the realities of the COVID-19 pandemic took hold in Canada.

Its move to raise the stress test level was quickly followed by an announcement from federal finance minister Chrystia Freeland that the qualifying rate for insured mortgages would also increase in line with changes to their uninsured counterparts.