‘The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent.’ – Bank Of Canada

The Office of the Superintendent of Financial Institutions (OSFI) restarted its consultation on the minimum qualifying rate for uninsured mortgages, and re-emphasized the importance of sound mortgage underwriting.

The new proposal for the qualifying rate for uninsured mortgages is the higher of the mortgage contract rate plus 2% or 5.25% as a minimum floor. Additionally, OSFI announced a proposal to revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment.

A strong financial system that is able to support Canadians in today’s environment will be critical to Canada’s post-pandemic economic recovery. The current Canadian housing market conditions have the potential to put lenders at increased financial risk. OSFI is taking proactive action at this time so that banks will continue to be resilient.

The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of change in circumstances, such as the reduction of income or a rise in mortgage interest rates. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers are able to repay their loans strongly contributes to the continued safety and soundness of Canada’s financial system.

OSFI is seeking input from interested stakeholders on this proposed qualifying rate by email to B.20@osfi-bsif.gc.ca before May 7, 2021. OSFI will communicate final amendments to the qualifying rate for uninsured mortgages in Guideline B-20 by May 24, 2021, with a coming into force date of June 1, 2021. – OFSI