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

Applications to be Rimbey Rodeo Royalty are now open

Rimbey Rodeo Royalty is looking for submissions for Rodeo Queen, Princess and Jr. Miss.

TC Energy enlists Alberta to help finish US$8-billion Keystone XL project

Alberta government has agreed toinvest about US$1.1 billion (C$1.5 billion) as equity in the project

Agriculture critical during and post-epidemic, Ag Minister says

Agriculture and Forestry Minister Devin Dreeshen held a call-in town hall meeting Monday night

Wolf Creek Public Schools answers questions about home-based learning

WCPS to roll out home-based learning details this week, March 30 to April 3

Alberta’s energy war room to spend only on ‘subsistence operations’ due to COVID-19

Alberta’s energy war room to spend only on ‘subsistence operations’ due to COVID-19

Father of Humboldt Bronco disappointed Saskatchewan has relaxed trucking rules

Father of Humboldt Bronco disappointed Saskatchewan has relaxed trucking rules

Alberta education minister resists Opposition calls to rescind mass layoffs

Alberta education minister resists Opposition calls to rescind mass layoffs

Alberta Medical Association calls health-care changes irresponsible during pandemic

Alberta Medical Association calls health-care changes irresponsible during pandemic

Crosby, McDavid favourites again in NHLPA annual poll

Crosby, McDavid favourites again in NHLPA annual poll

Toronto not banning sports events through June yet, but other measures in place

Toronto not banning sports events through June yet, but other measures in place

Too little too late? Experts decry Mexico virus policy delay

Too little too late? Experts decry Mexico virus policy delay

Hope floats: Alberta town ravaged by flood rolls out parade float for COVID-19

Hope floats: Alberta town ravaged by flood rolls out parade float for COVID-19

Most Read