As of November 21, 2024, Canada’s mortgage landscape just got a lot more flexible for homeowners. If you’re approaching your mortgage renewal and considering switching lenders, there’s some excellent news: you no longer need to pass the mortgage stress test when switching to a new lender — as long as your mortgage amount and amortization period stay the same.
This change, announced by Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), aimed at creating a more competitive mortgage market at renewal.
Why This Matters for You
For years, switching mortgage lenders at renewal was a stressful process for many homeowners. Borrowers were required to pass the stress test when switching lenders, even if their mortgage terms remained unchanged. This meant they had to prove they could afford higher mortgage payments in the event of rising interest rates, even though their loan size wasn’t changing. In January 2024, OSFI changed this rule for insured mortgages only. Now in Nov. 2024, the change will apply to all mortgage holders.
With the new policy change, borrowers will no longer be required to pass the stress test when switching lenders at renewal, provided the loan amount and amortization period remain the same. This means that if you’re looking for a better rate or more favourable terms, you can shop around with greater ease and confidence.
More Opportunity to Shop Around
This policy shift is great news for mortgage holders because it provides more opportunity to shop around for the best mortgage rates and terms, without the added complexity of passing a stress test. In today’s market, interest rates can vary significantly between lenders, so finding the right deal at renewal time can save you hundreds of dollars over the life of your mortgage.
With this change, you’ll now have more freedom to compare offers from different lenders, explore new products, and make sure you’re getting the best deal possible. Whether you’re hoping to lower your monthly payments, reduce your interest rate, or even switch to a more flexible mortgage product, this change makes the process simpler and more accessible.
How the Stress Test Worked — and Why It’s Changing
The mortgage stress test was introduced in 2018 as a way to ensure that borrowers could handle potential interest rate hikes. When you first apply for a mortgage, you must prove that you can afford your mortgage payments even if rates rise. To do this, the lender applies a Minimum Qualifying Rate (MQR), which is either 5.25% or your lender’s contract rate plus 2%, whichever is higher. Given that mortgage rates in recent years have been in the 5-6% range, many borrowers were stress-tested at rates as high as 7-8%.
However, when it came to renewals, uninsured borrowers were still required to pass this stress test if they switched lenders, even though their mortgage terms and loan amounts were staying the same. Meanwhile, insured borrowers — those with less than a 20% down payment and mortgage default insurance — were already exempt from the stress test starting in January 2024.
Why This Change is a Win for Borrowers
This new rule applies equally to both insured and uninsured borrowers who want to switch lenders at renewal time, and it has several clear advantages:
- More Choices, Less Hassle: You can now explore new lenders for a better rate without worrying about passing the stress test. The removal of this hurdle gives you more freedom to shop around and find the best mortgage deal for your needs.
- Better Rates & Terms: With the stress test no longer standing in your way, lenders will likely become more competitive in offering attractive rates to new customers. This could result in significant savings over the course of your mortgage.
- Fairer Treatment Across the Board: Prior to this change, there was a noticeable imbalance in how insured and uninsured borrowers were treated. Insured borrowers were exempt from the stress test, while uninsured borrowers had to pass it. By removing the stress test for both groups, OSFI has leveled the playing field, allowing all borrowers to shop for a better deal without the same restrictions.
- Simpler Switching Process: With fewer barriers to switching, the overall process of renewing your mortgage and switching lenders becomes simpler, faster, and less stressful.
Time to Re-Evaluate Your Mortgage
If your mortgage is up for renewal soon, now is the perfect time to take advantage of this new rule. You have more flexibility than ever to shop around for the best mortgage rates and terms without the stress test getting in your way. Whether you want to lower your interest rate, shorten your mortgage term, or switch to a more flexible product, now is the time to explore your options.
As a mortgage broker, I can help guide you through the process and make sure you’re taking full advantage of the changes to the mortgage market. Book a call (IT’S FREE!) and let’s work together to find the best deal for your mortgage, ensuring you get the best rates and terms possible.
Hi, I’m Jill, your mortgage pro. I am here to make the world of mortgages less confusing so you can feel confident in your financial decisions. Through my blog, I aim to provide you with the knowledge and guidance you need to make informed decisions. Your financial peace of mind is my top priority.
