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

Police apprehend Trail woman suspected of attempted armed robbery

The incident happened Wednesday night shortly before 10 p.m. in downtown Trail

Trail RCMP report on vandalism, an OD and theft

The first week of April was a busy one for the Trail and Greater District police

Opinion: Canadian emergency relief comes up short

MP Richard Cannings is serving his second term representing the South Okanagan-West Kootenay riding

BC Housing enlists Nelson hotels, Kalein Centre for COVID-19 isolation spaces

The service is for people either at-risk of or currently homeless

COVID-19 death toll reaches 50 in B.C., while daily case count steadies

B.C. records 34 new cases in the province, bringing total active confirmed cases to 462

B.C. unveils $5M for mental health supports during the COVID-19 pandemic

Will include virtual clinics and resources for British Columbians, including front-line workers

B.C.’s COVID-19 rent supplement starts taking applications

$300 to $500 to landlords for April, May and June if eligible

Reality TV show about bodybuilders still filming in Okanagan, amid COVID-19

Five bodybuilders from across the country flew to Kelowna to move into a house for a reality TV show

B.C.’s top doctor details prescription for safe long weekend

Yes, it includes hosting an online cooking show

BC SPCA seeks help for abandoned German shepherd puppies

Donations have ‘petered out’ as doors are closed due to COVID-19

Researchers to study whether plasma of recovered patients can treat COVID-19

Plasma is the liquid portion of the blood that contains the antibodies that protect against illness

Schools re-open in Nelson and Creston, but only for children of front-line workers

School District 8 is providing on-site education for certain families during the pandemic

Most Read