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

Remains identified as man who vanished from Langley Memorial Hospital

Searl James Smith disappeared in Feburary, 2019

Community Gaming Grants program announces $3 million donation to Food Banks B.C.

Langley Food Bank is in great need of size six diapers, baby wipes, milk, and cheese donations

VIDEO: Young Langley residents celebrate their birthdays with personalized parades

Growing trend amid COVID-19 closures is having decorated vehicles honk past homes

Thieves caught in the act at Aldergrove go-cart track

Three weeks ago, the Langley Quarter Midget Association decided to upgrade security after a theft

Canada expands 75% wage subsidy to COVID-19 affected businesses of all sizes: Trudeau

Program will provide up to $847 per week for each worker

IN DEPTH: How B.C. emptied its hospitals to prepare for COVID-19

Thousands of beds have been freed up, but patients and seniors have had to sacrifice

‘Nothing concrete’: Tenants, landlords lack details after B.C. unveils COVID-19 rental aid

Single mom in Golden says she’s already going to the food bank after being laid off

B.C. is seeing the highest rate of COVID-19 recovery in Canada, and there’s a few reasons why

British Columbia was one of the first to see rise in COVID-19 cases, and has also switched up testing

Crucial details of Ottawa’s proposed wage subsidy program expected today

The government has rolled out a bailout package totalling more than $200 billion

World COVID-19 morning update: Olympics delayed one year; 12,000 health care workers infected

Comprehensive world news update: Lockdown in UK showing signs of hope

Newspapers are safe to touch, World Health Organization confirms

Just make sure to wash your hands as you would after touching any surface or object

‘It’s up to us: Recently-returned B.C. couple urges Canadians to take COVID-19 seriously

Garrett Kucher and Tory Apostoliuk make it home after almost a week of lockdown in Spain

Most Read