Sept 26th, 2024: The Office of the Superintendent of Financial Institutions (OSFI) is set to eliminate the stress test requirement for uninsured mortgage switches, starting November 21, 2024. This change, which has drawn attention from both mortgage professionals and borrowers alike, applies to those looking to switch lenders at the end of their mortgage term. Traditionally, borrowers with uninsured mortgages (typically those who have more than a 20% down payment) were required to re-qualify under the stress test when switching lenders, which involved proving they could afford payments at the higher of the Minimum Qualifying Rate (MQR) or two percentage points above their contract rate.
This stress test removal aims to foster greater competition in the mortgage industry. Borrowers will have more flexibility to shop around for better mortgage rates without facing the hurdle of re-qualification. This move may help combat the “take it or leave it” scenario that many face when stuck with their current lender at renewal.
While this regulatory shift could benefit borrowers by encouraging lender competition, it is important to note that rigorous underwriting standards will still apply. Lenders will continue to assess factors like income and loan-to-value (LTV) ratios during the switch process to mitigate risk. Some industry professionals anticipate that smaller lenders may step up, potentially broadening options for borrowers. However, this change might not significantly impact overall mortgage rates, nor will it necessarily alleviate the ongoing challenges with housing affordability driven by supply and demand issues.
In summary, OSFI’s decision to end the stress test for uninsured mortgage switches could open up more options for borrowers, especially as mortgage renewal rates rise. However, the competitive landscape will still depend on lenders’ risk assessments and underwriting processes.
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