Changes could be on the horizon for uninsured mortgage qualification, in addition to those announced for insure mortgages
The Office of the Superintendent of Financial Institutions (OSFI) has announced that it is considering a new benchmark rate to determine the minimum qualifying rate for uninsured mortgages. OSFI is seeking input from interested stakeholders on this proposal before March 17, 2020.
OSFI’s mortgage underwriting guideline (B-20) sets the minimum qualifying rate for uninsured mortgages. Currently, the minimum qualifying rate is the higher of the contractual mortgage rate plus two percent, or the 5-year benchmark rate published by the Bank of Canada. The current benchmark rate is based on the posted rates from the six largest banks in Canada.
Earlier this year in remarks to the C.D. Howe Institute, OSFI indicated that it was reviewing the benchmark rate used for qualifying uninsured mortgages. OSFI has observed that the gap between actual contract rates and the current benchmark rate has widened, suggesting a less responsive floor than originally intended. The goal of the review is to identify a measure that is more accurate and responsive to market changes.
“Sound mortgage underwriting and B-20 contribute to financial stability throughout the economic cycle. Continually reviewing our prudential measures is part of an effective regulatory framework. This proposal aims to address the limitations of the current benchmark rate while preserving the integrity of the overall qualifying rate,” said Ben Gully, assistant superintendent, regulation.
OSFI is considering replacing the current benchmark rate with the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus a two percent buffer. This would be the same benchmark rate that’s going to be used for insured mortgages as of April 6th, as the Minister of Finance announced yesterday, following consultations with OSFI and other federal financial agencies.
OSFI’s proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates. In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.
OSFI is seeking input from interested stakeholders on this proposal by email to [email protected] before March 17. OSFI will communicate final amendments to the benchmark rate for uninsured mortgages by April 1, with changes effective on April 6.