Stress Test Update for Uninsured Mortgage Switches

In November, there was promising news for homeowners looking to switch their uninsured, conventional mortgage at renewal. The Office of the Superintendent of Financial Institutions (OSFI) announced that borrowers would no longer have to pass the stress test when moving their mortgage from one federally regulated financial institution (FRFI) to another. This change aimed to simplify the process for borrowers keeping the same loan amount and amortization schedule while covering up to $3,000 in transaction fees.

However, OSFI has issued new guidance, reversing this decision. As of now, the original stress test rules remain in place.

What Does This Mean?

Effective immediately, mortgage switches for uninsured, conventional mortgages will still be subject to OSFI’s stress test. This means borrowers must qualify based on the higher of:

• The benchmark rate of 5.25%, or

• Their contractual rate plus 2%.

The stress test ensures borrowers can handle potential increases in interest rates and manage their debt under changing economic conditions. OSFI has stated they are continuing to evaluate alternatives but, for now, the conservative approach will remain.

Special Transition for In-Progress Applications

If you began a mortgage switch between November 21st and December 16th, 2024, and your file does not meet the current Total Debt Service Ratio (TDSR) or Gross Debt Service Ratio (GDSR) guidelines, there’s some good news. Your application may still qualify under the earlier relaxed rules if the following conditions are met:

1. It’s an uninsured, conventional mortgage (no Home Equity Lines of Credit included).

2. The switch is from one FRFI to another FRFI.

3. You maintain the same loan amount and amortization schedule.

4. Transaction fees (such as assignment, discharge, legal fees, and prepayment penalties) do not exceed $3,000.

5. The funds required date (FRD) is within 30 days of your mortgage’s maturity date.

For example: If your maturity date is February 2025, the funds required date cannot be earlier than February 1, 2025.

What About Approved Applications Before December 16th, 2024?

If your mortgage switch was approved before December 16th, 2024, no further action is required. These applications will proceed as previously agreed under the November guidance.

Moving Forward

While this reversal may be disappointing for some, it highlights the importance of planning ahead when your mortgage is up for renewal. Mortgage brokers can help navigate the stress test rules, explore alternative solutions, and ensure you’re getting the best deal possible.

If you have questions about how this change affects your mortgage switch or want guidance during your renewal process, reach out to the team at Mortgage Brokers Ottawa. We’re here to simplify the process and help you make the most informed decision for your financial future.