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

Boundary hospital ‘ready for a surge,’ hoping it never comes

The emergency department director confirmed there were active COVID-19 cases in the Boundary

COVID-19: Interior Health orders closure of all fitness centres until May 30

The order is subject to revision, cancellation, or extension

FortisBC pausing power disconnections and late-fees amid COVID-19 crisis

Company says they plan to work with customers affected by COVID-19 on a “one on one” basis

Grand Forks and Boundary cancellations, changes due to COVID-19

This newspaper’s list of community events, institutions that change or cancel due to pandemic

Don’t avoid doctor’s office if you need help, say Kootenay Boundary physicians

There are alternatives to coming in physically to offices, docs say

From inside the ER: B.C. doctor tells it like it is from the frontlines of COVID-19

‘Stay home. It’s working,’ says ER doctor in a Q&A discussion, ‘And please don’t worry.’

B.C. senior gives blood for 200th time, has ‘saved’ 600 lives

There was no cutting of cake for Harvey Rempel but he’s challenging youth to start donating blood

Trudeau commits $100M to help food banks amid COVID-19 crisis

Funds will help ‘urgent food needs’ for Canadians awaiting federal emergency benefits to kick in

Couple won’t self-isolate after returning from overseas: Cowichan by-law

New law requires 14 days of self-isolation when returning to Canada

How well can cell phones carry COVID-19? Disinfecting may be wise

‘You want to keep it as clean as you would normally your hands’

3M pushes back on Trump administration call to stop sending N95 masks to Canada

3M says it has already been turning out as many of the N95 masks as possible

B.C. health care workers gain access to virtual health care options

During COVID-19 many clinics have closed, leaving health care workers with nowhere to turn

Tax collectors, auditors to help field ‘historic’ numbers of benefit-seeking callers

‘If you work for CRA, people think we are just there to take money from your pockets.’

Most Read