Page 4 - Real Estate Now Sept-Oct 2021

Update to Canada’s Mortgage

Qualifying Rules Explained

Michelle McNally courtesy REALTOR.ca
E arlier this summer, new changes were announced for the federal mortgage stress test, shifting the ground again

in terms of how much house new and seasoned home buyers are qualified to purchase.
In April, Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), proposed
an increase for the stress test’s minimum qualifying rate on uninsured mortgages. This raised the previous rate from
4.79% to its current value of 5.25%.

As of June 1, 2021, the new qualifying rate for the stress test is applicable to all federally regulated mortgages,
including both uninsured and insured mortgages. Insured mortgages apply to borrowers who have a downpayment
that’s less than 20% of their home purchase, while uninsured mortgages are available to borrowers who have a
downpayment worth 20% or more.

The stress test’s minimum qualifying rate helps ensure borrowers can still make mortgage payments in the event of a
change in circumstances, such as a job loss or a rise in interest rates. In its rate increase announcements, OSFI stated
Canada’s current housing market, which has seen record-high sales, bidding wars, and soaring prices since mid-2020,
puts lenders at risk. The latest rate change helps to “support financial resilience should economic circumstances
change,” according to OSFI.
“In a complicated and sometimes volatile housing market, the need for sound mortgage underwriting cannot be
underestimated,” said Ben Gully, Assistant Superintendent of OSFI, in a statement regarding the qualifying rate
change announcement.
If you’re in the market to buy a home, then you’ll probably want to know how the latest changes to the mortgage
qualification rules will affect you. James Laird, co-founder of Ratehub.ca and President of CanWise Financial mortgage
brokerage, gives us some insight on what the most recent set of amendments mean.
What is the stress test, and why did it change?
Canada’s red-hot housing market was already showing signs of cooling down after it reached all-time record levels
in March 2021, according to the Canadian Real Estate Association (CREA). In its most recent report, CREA noted the
housing market has continued to show signs of moderation, with sales dropping by 7.4% month-over month in May.
However, despite this gradual tapering off, Laird said it became apparent in the first quarter of 2021 that OSFI was
going to make a change.
“I think it was quite obvious they were going to do something and I think this is a fairly measured response. The
market had already kind of cooled a little bit,” said Laird. “Now it’s in effect for the next time things really heat up.”

4 | REAL ESTATE NOW | denise@BCislandhomes.ca