Homes are pictured in Vancouver on April 16, 2019. THE CANADIAN PRESS/Jonathan Hayward

Ottawa to change stress test rate for insured mortgages next month

Qualifying rate will be borrower’s contract rate or weekly median 5-year fixed insured mortgage rate

The federal government is changing the stress test rate for insured mortgages starting April 6.

The government says the change will allow the rate to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.

The new minimum qualifying rate will be the greater of the borrower’s contract rate or the weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus two percentage points.

The stress test rate currently is the greater of the borrower’s contract rate or the Bank of Canada five-year benchmark posted mortgage rate, which is based on the posted rates at the six largest banks.

Finance Minister Bill Morneau says the government wanted to make the stress test more dynamic to market conditions.

“We think these are positive moves to ensure that the approach remains effective for Canadians and that it also deals with changing market conditions,” the minister said.

“I think what’s important for us to ensure is that we continue to protect people’s most important investment. This will ensure that people only take on mortgages that are appropriate for their situation.”

The federal government required the stress test apply to all insured mortgages in 2016.

Canadian household debt has been near record levels, fuelled in part by mortgages. The stress test is used to ensure that Canadians can afford their mortgage payments if interest rates rise in the future.

The government said the Bank of Canada five-year benchmark posted mortgage rate has typically been about two percentage points higher than the average five-year fixed contract rate for insured mortgages.

However, it said that in recent years, that rate has not been as responsive to changes in the average mortgage contract rates.

The Bank of Canada five-year benchmark posted mortgage rate is currently 5.19 per cent, while the special offer rate advertised on the Royal Bank’s website for a five-year fixed-rate mortgage is 3.09 per cent and rates offered by smaller lenders are even lower.

The central bank will publish the new benchmark rate every Wednesday, with the rate coming into effect the following Monday.

READ MORE: Realtor groups push for eased mortgage rules as federal campaign gets underway

The Office of the Superintendent of Financial Institutions says it is also considering using the same new stress test rate for uninsured mortgages.

The office has been using a minimum qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.

The Canadian Press

Like us on Facebook and follow us on Twitter

HomeownersMortgage BrokersReal estate

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Hope Food Bank to run weekly, as other services close doors

Demand for the service is expected to rise as getting supplies becomes tricky

Social media a blessing and a curse during time of crisis: B.C. communication expert

‘In moments of crisis, fear is very real and palpable,’ says SFU’s Peter Chow-White

Portable washrooms open, campground closed to visitors as district deals with COVID-19

District also working with businesses on ‘voluntary reductions in operations and shutdowns’

Significant snowfall forecast for Interior mountain passes

Allison Pass, the Okanagan Connector, Rogers Pass and Kootenay Pass could see 15 to 25 cm of snow

Hope care homes, seniors residences close to visitors

Preventative measures ramped up as COVID-19 found in several B.C. long term care facilities

Canada expands 75% wage subsidy to COVID-19 affected businesses of all sizes: Trudeau

Program will provide up to $847 per week for each worker

LifeLabs reducing public hours as it assists with COVID-19 testing

Coronavirus tests not done at B.C. patient centres, referrals only

24,000 Canadian Forces members ready for COVID-19 response: Defence Minister

No direct requests made by premiers yet, national defence minister says

IN DEPTH: How B.C. emptied its hospitals to prepare for COVID-19

Thousands of beds have been freed up, but patients and seniors have had to sacrifice

‘Nothing concrete’: Tenants, landlords lack details after B.C. unveils COVID-19 rental aid

Single mom in Golden says she’s already going to the food bank after being laid off

B.C. is seeing the highest rate of COVID-19 recovery in Canada, and there’s a few reasons why

British Columbia was one of the first to see rise in COVID-19 cases, and has also switched up testing

Crucial details of Ottawa’s proposed wage subsidy program expected today

The government has rolled out a bailout package totalling more than $200 billion

World COVID-19 morning update: Olympics delayed one year; 12,000 health care workers infected

Comprehensive world news update: Lockdown in UK showing signs of hope

Most Read