Mortgage Stress Test Changes: What They Mean for Your Mortgage Switch
Starting November 21, 2024, Canadian homeowners with uninsured mortgages have something to celebrate: the removal of the Minimum Qualifying Rate (MQR) stress test for straight mortgage switches. This change, introduced by the Office of the Superintendent of Financial Institutions (OSFI), marks a significant step toward creating more flexibility for borrowers and a sense of relief from the stress of mortgage decisions.
Here’s what you need to know about this change and how it could positively impact your mortgage renewal or switch process.
What’s a Straight Switch?
A straight switch involves transferring your mortgage from one lender to another without increasing the loan amount. Thanks to the mortgage stress test changes, this process is now simpler for uninsured borrowers.
What is an Uninsured Mortgage?
Uninsured mortgages are home loans without default insurance. They typically require a down payment of 20% or more and often have stricter qualification criteria than insured mortgages.
Stress Test Removal 2024: Why This Change Matters
Previously, homeowners with uninsured mortgages had to requalify at a higher stress test rate when switching lenders—2% above their current contract rate. That rule often left borrowers stuck with their current lender, especially if their financial circumstances had shifted.
Now, homeowners can switch lenders without this extra hurdle, provided they don’t increase their loan amount or extend the amortization period.
Key Benefits of the Stress Test Removal Change:
- Greater Negotiating Power: Borrowers can shop for better rates or terms without the fear of failing a stress test.
- Fair Treatment: The rule aligns uninsured mortgage renewals with insured ones, where borrowers weren’t subject to requalification when switching lenders. This fairness in treatment provides homeowners with a sense of security and equality in the mortgage market.
- Increased Flexibility: Homeowners can explore competitive options and choose the lender that best fits their needs.
“The Mortgage Stress Test Removal levels the playing field for borrowers, giving them the freedom to explore better options without unnecessary barriers.”
What This Means for Borrowers
If you’re a homeowner with an uninsured mortgage, this change offers you more options when renewing your mortgage. You can now:
- Shop Around Confidently: With no stress test barrier, you can consider lenders offering better interest rates or more attractive terms.
- Save Money: A lower rate could mean significant savings over the life of your mortgage.
- Avoid Feeling Trapped: You can leave your current lender if they don’t match competitive offers.
What Lenders Are Doing
With competition heating up, lenders must work harder to retain clients. This might mean:
- Sharper Rates: Expect lenders to “sharpen their pencils” to offer competitive rates at renewal.
- Better Service: Enhanced customer experiences and support may become a focal point.
Many lenders acknowledge the shift, and their leaders emphasize creating compelling offers and exceptional customer experiences to retain business.
Looking Ahead: Is the Stress Test Going Away Completely?
The removal of the MQR for uninsured mortgage switches has sparked speculation that OSFI may eventually phase out the stress test entirely. While some industry experts believe this is a logical next step—especially given the new loan-to-income (LTI) caps coming in 2025—others remain cautious.
The change applies solely to straight switches, and lenders still assess borrowers’ financial health using Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.
What Should You Do Next?
If your mortgage is up for renewal or you’re considering a switch, this is the perfect time to explore your options:
- Consult a Mortgage Expert: A professional can help you navigate the process and identify the best opportunities for your situation.
- Review Your Financial Goals: Ensure your new mortgage aligns with your financial objectives.
- Act Early: With many mortgages up for renewal in the coming years, starting the process sooner ensures you’re well-prepared to take advantage of competitive offers.
The removal of OSFI’s stress test for uninsured mortgage switches is a win for Canadian homeowners. It offers increased flexibility and better opportunities to secure favourable terms. By staying informed and proactive, you can make the most of this positive change and achieve your financial goals.
Let’s connect today to discuss how this change might benefit your mortgage journey!
