Dec 17th, 2024: The Government of Canada has introduced a significant change to mortgage insurance rules, effective December 16, 2024. This update allows stress-test-free switches for low-ratio (“bulk insured”) mortgages at renewal, creating new opportunities for borrowers and reshaping how mortgage renewals are approached.
What Does This Mean for Borrowers?
Traditionally, borrowers switching lenders at renewal were required to requalify under the mortgage stress test, which could present challenges for those with higher Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. However, with this policy change:
- Insurable borrowers with higher GDS/TDS ratios can now switch lenders at renewal without being subject to the stress test.
- Instead of qualifying at the contract rate plus 200 basis points (or 5.25%, whichever is higher), these borrowers can now qualify at the contract rate alone.
This adjustment provides borrowers with more flexibility and an enhanced ability to explore competitive offers from other lenders, potentially securing better terms.
Eligibility Criteria
To benefit from this policy, borrowers must meet the following requirements:
- Loan-to-Value (LTV): Maximum of 80%.
- Mortgage Type: Applies only to renewals—early renewals are excluded.
- Original Lender: Must be federally regulated and have subjected the borrower to a stress test at the time of origination.
- New Lender: Must be an approved lender under the National Housing Act.
- Amortization: The schedule cannot be altered.
- Loan Amount: Must remain the same, except for an allowance of up to $3,000 to cover transaction-related costs such as penalties or fees.
Why This Matters
This policy change is a significant win for consumers, enabling greater flexibility and reducing barriers to switching lenders. It fosters a more competitive market, giving borrowers the opportunity to seek better rates and terms without the added hurdle of requalifying under stringent stress-test criteria.
What’s the Impact for Brokers?
For mortgage brokers, this amendment opens new doors to assist clients. By eliminating the stress test requirement at renewal, brokers can now:
- Help clients explore a wider range of options.
- Negotiate better terms for borrowers who might previously have been locked into their current lender’s offers.
- Demonstrate the value of professional advice in navigating the changing mortgage landscape.
While lenders are expected to focus on retaining clients through competitive renewal offers, this policy creates an environment that prioritizes consumer choice and reduces friction in the lending process.
Looking Ahead
The introduction of stress-test-free low-ratio switches is a forward-thinking policy that aligns with the needs of today’s borrowers. If you or your clients are approaching a mortgage renewal, this is the perfect time to reassess options and take advantage of this new flexibility.
For more details or personalized advice, connect with us today and we can guide you through the process and help you secure the best possible outcome.
Give your Mortgage Professional a Call Today
Navigating your current situation may seem challenging, given the various factors influencing your mortgage. However, finding a solution is within reach. Whether you seek clarity, guidance, or simply peace of mind during these complex times, we’re here to assist you every step of the way.
Feel free to schedule a consultation or reach out to us directly. Our team of mortgage professionals is dedicated to providing personalized support tailored to your needs.
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