The Bank of Canada is set to make a significant 50-basis-point cut to its key interest rate during its upcoming meeting in October. In addition to this, the federal banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has confirmed it will introduce relief measures for mortgage borrowers.

Eliminating the Stress Test for Uninsured Mortgage Transfers

As part of these measures, OSFI has announced that it will remove the stress test requirement for borrowers with uninsured mortgages when transferring their loans to a new lender. This change will officially take effect on November 21, 2024.

The stress test, introduced in early 2018, requires uninsured mortgage borrowers (those with a down payment of 20% or more) to qualify for their loan at the Bank of Canada's five-year benchmark rate or their mortgage rate plus 2%, whichever is higher. This requirement will no longer apply when borrowers transfer their existing mortgage to a new lender, provided that the loan amount and amortization schedule remain unchanged.

A Long-Overdue Change for Borrowers

The removal of the stress test for mortgage transfers addresses a long-standing complaint that it discouraged—or even prevented—borrowers from shopping for better mortgage rates at renewal. OSFI made the decision following feedback from the mortgage sector and Canadians, acknowledging that the risks the stress test was meant to address "did not materialize significantly."

Recommendations from the Competition Bureau

In March, the Federal Competition Bureau recommended the elimination of the stress test, stating that the policy was not applied uniformly across the board. OSFI has now responded to these concerns by recognizing that the measure was not well-suited to current market conditions.

Looking Ahead

The anticipated interest rate cut, coupled with the removal of the stress test requirement for uninsured mortgage transfers, is expected to offer much-needed relief to Canadian homeowners. These changes aim to foster a more competitive mortgage market, giving borrowers greater flexibility to secure the best rates without unnecessary barriers.