This was revealed in a statement made by OSFI Deputy Superintendent, Carolyn Rogers. The mortgage stress test was introduced in 2018 to ensure that Canadians borrowing money for their mortgages were able to afford payments at higher interest rates. It requires lenders to qualify borrowers based on either the five-year benchmark rate set by the Bank of Canada or two percentage points higher than the actual interest rate they have negotiated with their lender, whichever is higher.
Rogers stated that OSFI is currently monitoring the housing market and will be making adjustments to the mortgage stress test should it deem necessary. However, they have no plans to soften it for the time being.
This decision has major implications for Canadian borrowers and lenders. On the borrower’s side, it means that they must be more aware of their financial situation and be sure that they can manage the payments if the interest rate increases. It also helps to protect lenders in the event that borrowers become unable to keep up with their mortgage payments due to the higher rates.
At the same time, the mortgage stress test makes it harder for borrowers to qualify for a loan, as they need to show that they can handle the higher payment. This could lead to some people being shut out of the housing market altogether, as they may not be able to meet the stricter qualifications.
Overall, it is clear that OSFI is taking a prudent approach with the mortgage stress test and has no current plans to change it. This could make it difficult for some borrowers to purchase property, but it also ensures that lenders are protected from defaults due to interest rate hikes and that borrowers are not overextending themselves when taking out a loan. However, should the housing market continue to fluctuate, then OSFI could reconsider its position.
This article was contributed on Oct 16, 2023
