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TORONTO (Reuters) - Canada’s financial regulator, which has been planning changes in its four-year-old mortgage stress test, on Thursday proposed making it tighter, following concerns that the initial measures could further stimulate the red-hot housing market.
The Office of the Superintendent of Financial Institutions (OSFI) is proposing that the new benchmark to determine the minimum qualifying rate for uninsured borrowers would be either the greater of a range of rates submitted by lenders plus 200 basis points or 5.25%, according to a letter to lenders.
It is broadly an increase from the initial plan announced in February 2020, which was shelved a month later as the coronavirus pandemic took front seat. That proposed the weekly median five-year fixed insured rate, calculated from mortgage insurance applications, as the benchmark, which stakeholders said would be “highly volatile.”
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UPDATE 2-Canada proposes tighter mortgage stress test as home prices surge Reuters 2 days ago
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By Nichola Saminather
TORONTO, April 8 (Reuters) - Canada s financial regulator, which has been planning changes in its four-year-old mortgage stress test, on Thursday proposed making it tighter, following concerns that the initial measures could further stimulate the red-hot housing market.
The Office of the Superintendent of Financial Institutions (OSFI) is proposing that the new benchmark to determine the minimum qualifying rate for uninsured borrowers would be either the greater of a range of rates submitted by lenders plus 200 basis points or 5.25%, according to a letter to lenders.
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The federal banking regulator is proposing increased requirements to the stress test facing homebuyers with uninsured mortgages as it looks ahead to a return to pre-pandemic financial conditions with higher interest rates.
The proposal from the Office of the Superintendent of Financial Institutions would set the qualifying rate for uninsured mortgages at the contracted rate plus two percentage points or 5.25%, whichever is higher.
That’s a change from the current rules of the bank rate plus two percentage points or the Bank of Canada’s five-year benchmark rate, which currently sits at 4.79%.
Any buyer whose down payment on a home is less than one-fifth of the purchase price must undergo the stress test to demonstrate they could still afford mortgage payments in a higher rate environment. The measure adds a margin of safety for borrowers.
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