Good news for homeowners who have a mortgage renewal coming due later this year.The Office of the Superintendent of Financial Institutions (OSFI) will be scrapping the rule for borrowers with uninsured mortgages to complete a stress test when switching lenders at renewal time, to take effect on November 21.The stress test was introduced in January 2018, requiring borrowers with uninsured mortgages, those with a down payment of 20% or more, to qualify at the higher of the Bank of Canada’s five-year benchmark rate or their mortgage rate plus 2%. The policy was designed to ensure borrowers could handle potential future rate increases.Mortgage providers will no longer have to apply the minimum qualifying rate when a borrower moves from another lender and keeps their existing loan amount and amortization schedule, OSFI said in a statement.The policy has long been an irritant to the mortgage industry, real estate associations and new home builders, serving as deterrent for homeowners hoping to shop around at renewal time. OSFI told Canadian Mortgage Trends (CMT) there were two main reasons behind the change.“First, we are listening to what we have heard from industry and from Canadians about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal,” a spokesperson said.“Second, when we look at the data over time, we have observed that the prudential risks that this was intended to address have not significantly materialized. As a prudential regulator we enable banks and lenders to compete and take reasonable risks.”Mortgage Professionals Canada (MPC) president and chief executive officer Lauren van den Berg said removal of the stress test at renewal is a “significant win” for Canadians.She said it would allow borrowers to secure the best rate at renewal time and provide them a wider slate of options to choose from."The change is the latest in a slew of amendments to Canada’s mortgage guidelines, with the federal government announcing last week that it was hiking the cap on insured mortgages to $1.5 million and allowing 30-year amortizations to first-time homebuyers and Canadians purchasing newly built properties," says Canadian Mortgage Professional.Over the summer, OSFI superintendent Peter Routledge noted concerns raised by the Competition Bureau aided in making the decision.“If I were a homebuyer facing that, I would feel like it was an imbalance,” Routledge said of the rule, which the Bureau argued was preventing competition among lenders and stopping Canadians from getting the best deal at renewal, reports CMT.OSFI said it is, "collaborating with financial institutions to ensure they’re fully prepared for the implementation of the new rules," reports CMT, adding the agency will formally announce the new renewal policy in its next quarterly release, on November 21.
