As has been widely anticipated over the past few months, changes have arrived for Canada’s mortgage stress test. The Canadian department of finance has changed the way insured mortgages will be stress tested, and it sounds like OSFI will follow suit with uninsured mortgages as well. Under the current stress test, borrowers had to qualify at the greater of the Borrower’s Contract Rate, which is the mortgage interest rate agreed to by the lending institution and the borrower, or the Bank of Canada 5-Year Benchmark Posted Mortgage Rate which currently sits at 5.19%. Over the past year we’ve seen a significant decline in bond yields, which has prompted a sharp decline in mortgage rates. However, the Bank of Canada 5-Year Benchmark Posted Mortgage Rate has remained relatively unchanged. In other words, today’s benchmark rate (currently 5.19%) is too high relative to actual mortgage rates. So, regulators are changing the benchmark rate. The new benchmark rate will be set using a weekly median 5-year fixed insured mortgage rate as calculated by the Bank of Canada from federally-backed mortgage insurance applications, plus an additional 200 basis points on top.

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