The Office of the Superintendent of Financial Institutions (OSFI) has announced that homeowners are no longer subject to the mortgage stress test when switching their lender beginning on November 21, 2024. This will allow homeowners to renew their mortgage with a new lender at the end of the term as well as maintain the same amortization schedule and loan amount. Essentially, this “straight switch” will allow for there to be the same mortgage just with a different lender.

Before this, only insured borrowers with smaller down payments were  exempt from the stress test requirement from January 2024. Uninsured borrowers who put more than 20% on their down payment still had to go through the stress test to switch to a different mortgage lender.

What is the mortgage stress test?

The mortgage stress test is designed to protect and ensure homebuyers are able to afford their mortgage payments even if interest rates rise or there are other financial difficulties. Borrowers must prove that they have the income and debt ratios to pass the Minimum Qualifying Rate (MQR) of 5.25% or 2% above the contract rate.

If we observe the rates of both fixed and variable mortgages, it is between the 5-6% range. Since mortgages have been stress tested at the rate plus 2%, this means that borrowers were required to pass a test that was between 7-8% which was proven difficult to borrowers when they wanted to switch their lenders.

Controversy and OSFI’s Shift in Approach

Critics have raised concerns regarding the mortgage stress test and the imbalance present between insured and uninsured borrowers. Under the stress test, there was no competition between lenders since borrowers were not able to leave their current lender and shop for better options at renewal. Lenders would also have less incentive to offer better rates to those who switched. 

OSFI’s previous approach was that a new loan from a different lender had to undergo a full underwriting process to assess the borrower’s financial ability to repay the loan. The mortgage industry argued that since the terms of the mortgage remain unchanged, subjecting borrowers to the stress test again is unnecessary.

Additional Mortgage Changes in 2024

As of December 15, there will be two significant changes in mortgage conditions for first-time homebuyers and new builds:

• 30-year mortgage amortizations will become available. 
• The insured mortgage price cap will increase from $1 million to $1.5 million.

Learn more about these new changes from our blog: “Canada’s Bold New Steps to Make Homeownership Accessible: 2024 Mortgage Rule Changes”