OSFI Announces Removal of Stress Test for Uninsured Mortgage Switches
Tonia Jacobsen • September 30, 2024
Starting November 21, 2024, borrowers switching lenders with uninsured mortgages will no longer face the stress test, thanks to a new policy from OSFI. Previously, uninsured borrowers needed to prove they could afford their mortgage at a higher rate, which created barriers to switching for better terms. This change encourages competition among lenders and aligns the rules with insured mortgages, providing more flexibility and choice for homeowners.
The decision responds to concerns raised by the Competition Bureau and reflects shifting risk management trends in the mortgage market.
Key Points:
- Applies to Straight Switches: This policy is for borrowers switching lenders while maintaining their loan amount and amortization schedule.
- Stress Test Removed: No more proving affordability at higher rates during switches, allowing for easier access to competitive offers.
- Supports Borrower Flexibility: Homeowners now have more options to find the best mortgage rates at renewal without the stress test obstacle.
Why the Change?
OSFI initially maintained the stress test to manage risk but has now reversed this stance after evaluating that the original concerns have not significantly materialized. This move is designed to balance fairness for borrowers and enhance competition in the mortgage market.
How It Affects You
For those with uninsured mortgages approaching renewal, this policy change is a win. You'll now have the opportunity to seek out better mortgage rates without facing a stress test, making it easier to reduce financial strain, especially in a rising interest rate environment.
Stay informed and take advantage of these changes by reviewing your mortgage options today!
Worried About Your Mortgage Renewal? You’re Not Alone If your mortgage renewal is coming up soon, you're likely feeling a bit of financial pressure—and you’re not the only one. A recent survey shows that over half of Canadian homeowners believe their upcoming mortgage renewal could impact their current living situation. With interest rates still higher than what many borrowers locked in before 2022, 45% of those renewing in the next 12 months expect their monthly payments to increase. Even though the Bank of Canada has held its key overnight rate steady at 2.75%, borrowing costs remain elevated compared to the low-rate years we saw earlier in the decade. And that’s changing how Canadians think about their finances. Changing Plans and Tightening Budgets Among those worried about their renewal, 73% say they’re already cutting back on discretionary spending—things like eating out, entertainment, or travel—to brace for higher mortgage payments. For many, it goes deeper than just trimming the budget. Nearly one in four surveyed homeowners said they’re rethinking their entire financial strategy. Some are pressing pause on home renovations (43%), while others are considering downsizing or relocating to a more affordable area (29%). A smaller group (15%) is even open to major lifestyle changes, like moving in with roommates or relocating to a new neighbourhood altogether. Fixed-Rate Mortgages on the Rise In this climate, most homeowners looking to renew are leaning toward fixed-rate mortgages, with 75% preferring the stability of predictable payments. For those facing uncertainty, locking in a rate for the next few years can offer peace of mind—even if it means paying a little more in the short term. First-Time Buyers Are Feeling It Too It’s not just current homeowners feeling the pinch. A separate survey found that more than half of Canadians planning to buy a home are cutting back on non-essential spending to save for their down payment or other buying costs. About 31% are even considering tapping into savings or investment accounts like TFSAs, RRSPs, or first-time home savings accounts to make their purchase possible. What This Means for You Whether you’re preparing to renew or purchase for the first time, this environment calls for smart, strategic planning. You’re not alone in feeling uncertain—but with the right guidance, you can navigate these changes confidently. Have questions about your upcoming renewal or wondering what type of mortgage is right for today’s market? Let’s connect. We're here to help you make informed, confident decisions about your home financing.
It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!
