Canadian government changing stress test rate for mortgages soon

OTTAWA — 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.

“The government will continue to monitor the housing market and make changes as appropriate,” Finance Minister Bill Morneau said in a statement Tuesday.

“Reviewing the stress test ensures it is responsive to market conditions.”

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

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

OSFI 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.

OSFI, which is consulting with stakeholders, has proposed that it will also adopt the new benchmark rate on April 6 to coincide with the changes for insured mortgages.

The Canadian Press