OSFI easing stress test requirements for uninsured mortgages when switching providers

The national banking regulator says it will no longer require borrowers with uninsured mortgages to undergo a stress test when switching providers.

The Office of the Superintendent of Financial Institutions says it will end the policy for lenders to apply the minimum qualifying rate to straight switches — when uninsured mortgages are renewed at a different institution under the mortgagor’s current amortization schedule and loan amount.

OSFI says the change comes after feedback from the industry and Canadians “about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal.” It also says data shows the risks that the requirement had been intended to address “have not significantly materialized.”

In March, Canada’s Competition Bureau recommended allowing uninsured mortgage borrowers to switch between banks without undergoing a stress test, saying the policy was “not applied evenly.”

The stress test requires federally regulated financial institutions to ensure borrowers can still make mortgage payments if they experience financial shocks such as an increase in mortgage interest rates or an increase in household expenses.

The regulator says it is working with financial institutions to ensure they are prepared for the change, which it intends to formally communicate as part of its next quarterly release on Nov. 21.