The Office of the Superintendent of Financial Institutions (OSFI) in Canada has announced that it will maintain the minimum qualifying rate for mortgage stress tests at 5.25%. This stress test is used to determine if prospective homeowners can handle their mortgage payments in the face of rising interest rates or income loss.
For individuals with a down payment of 20% or more, they must prove their ability to manage a mortgage at the minimum qualifying rate of 5.25%. This rate has remained unchanged since June 2021 and the OSFI believes it will help reduce residential mortgage delinquency and default rates.
However, some concerns have been raised regarding the impact on mortgage renewals and the Canadian economy. This is because homeowners will have to renew their mortgages at potentially higher rates. Unlike the United States, Canadian lenders typically issue mortgages with shorter terms, usually five years.
In related news, the OSFI recently stated that it will not require the country’s largest banks to increase their capital reserves. The regulator recognizes that banks have already established sufficient buffers to protect against potential risks to the financial system.