{"id":14985,"date":"2020-02-24T11:11:00","date_gmt":"2020-02-24T19:11:00","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=14985"},"modified":"2020-02-19T10:12:27","modified_gmt":"2020-02-19T18:12:27","slug":"mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2020\/02\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\/","title":{"rendered":"Mortgage Stress Test Changes Take Effect on April 6th Aimed at Adjusting The Benchmark Rate"},"content":{"rendered":"<p style=\"text-align: justify;\">The federal government and a federal banking regulator are planning to tweak mortgage stress tests in time for the busy spring home-buying season, a move that could make it easier for would-be owners to get a loan and add fuel to Canada\u2019s housing market.<\/p>\n<p style=\"text-align: justify;\">Finance Minister Bill Morneau and the Office of the Superintendent of Financial Institutions announced Tuesday that they aim to replace the current benchmark rate \u2014 or \u201cfloor\u201d \u2014 that is used in stress tests for mortgages both insured and uninsured against borrower default.<\/p>\n<p style=\"text-align: justify;\">Currently, the benchmark for those minimum qualifying rates is published by the Bank of Canada and based off the posted five-year conventional mortgage rates offered by the country\u2019s six largest lenders. Following a review, both the federal government and OSFI said the floor had fallen out of step with actual housing market conditions, and that it is now slated to be replaced with a new benchmark as of April 6.<\/p>\n<p style=\"text-align: justify;\">\u201cThe government will continue to monitor the housing market and make changes as appropriate,\u201d Morneau said in a press release. \u201cReviewing the stress test ensures it is responsive to market conditions.\u201d<\/p>\n<p style=\"text-align: justify;\">Morneau sets the insured stress test and OSFI sets the uninsured one, with the latest versions put in place in 2016 and 2018, respectively. The new benchmark for the tests will be a weekly, five-year rate calculated by the Bank of Canada and based on mortgage insurance applications, plus a \u201cbuffer\u201d of two percentage points.<\/p>\n<p style=\"text-align: justify;\">However, Morneau and OSFI are adjusting their respective mortgage stress tests as Canada\u2019s housing markets have been seeing increased activity, with more and more buyers competing for a finite supply of real estate. Moreover, the stress tests were put in place to ensure borrowers could meet their obligations to federally regulated financial institutions if there was a change in circumstances, such as a hike to interest rates.<\/p>\n<p style=\"text-align: justify;\">One effect of a new floor for the stress tests could be that it makes the historically busy spring season for the housing markets even busier. While bank CEOs have cautioned Ottawa against too much stress-test tinkering, the real-estate industry had been particularly vexed over the test for uninsured loans, arguing possible homebuyers were being pushed out of the market.<\/p>\n<p style=\"text-align: justify;\">OSFI said its new benchmark would be roughly 4.89% as of Tuesday, or about 30 basis points below the current floor, noted Robert McLister, the founder of mortgage-rate comparison website RateSpy.com. This could come in addition to a \u201cpsychological impact\u201d on buyers who were already worrying about missing their chance to own a home.<\/p>\n<p style=\"text-align: justify;\">\u201cSo that\u2019s going to heat up a spring market that was already shaping up to be pretty hot,\u201d McLister said.<\/p>\n<p style=\"text-align: justify;\">But both the federal government and OSFI had also been sending signals that an adjustment was coming \u2014 Morneau was ordered to consider such a change in a mandate letter from Prime Minister Justin Trudeau.<\/p>\n<p style=\"text-align: justify;\">According to the government, the review of the stress test for insured mortgages found standards continued to ensure borrowers were able to afford their homes even if circumstances did change. The finance minister will be allowed to adjust the new two-percent buffer as well.<\/p>\n<p style=\"text-align: justify;\">OSFI is currently inviting input on switching to the new benchmark, but is proposing it be effective April 6 in order to co-ordinate with the insured-mortgage measure.<\/p>\n<p style=\"text-align: justify;\">\u201cThe spread between actual contract rates and the current benchmark rate has widened recently, suggesting that the benchmark is less responsive to market changes than when it was first proposed,\u201d OSFI said in an industry notice on Tuesday. \u201cThe new benchmark rate would replace the five-year conventional rate, and would be more representative of the broader market and responsive to fluctuations in actual contract rates.\u201d<\/p>\n<p style=\"text-align: justify;\">Mortgage-default insurance is required when borrowers make a down payment of 20% or less of a home\u2019s purchase price. With the changes in place, the minimum qualifying rate for an insured mortgage will now be either the new benchmark rate or the rate on a borrower\u2019s contract, whichever is higher. For uninsured loans, it would be the greater of the benchmark or the contract rate plus two percentage points.<\/p>\n<p style=\"text-align: justify;\">The Canadian Real Estate Association praised the changes in a statement Tuesday, saying it would better reflect what\u2019s happening in the market.<\/p>\n<p style=\"text-align: justify;\">\u201cRealtors have advocated for changes to the stress test on behalf of potential homeowners who have been sidelined, borrowers who have moved away from the regulated market to less-regulated options, and real estate markets across the country in need of relief,\u201d said Jason Stephen, president of the CREA, in the statement.<\/p>\n<p style=\"text-align: justify;\">McLister predicted the adjustments could prompt some pushback given the timing of the move, but argued \u201cdecoupling\u201d the stress-test rate from the rates published by the Big Six needed to happen.<\/p>\n<p style=\"text-align: justify;\">\u201cIf you think the government can time housing effectively, then obviously you haven\u2019t seen its GDP estimates and budgetary estimates,\u201d he said. \u201cThe bigger story is that this is a long-term win for consumers in the housing market.\u201d<\/p>\n<p style=\"text-align: justify;\"><a href=\"https:\/\/vancouversun.com\/real-estate\/mortgages\/mortgage-stress-test-changes-coming-morneau-announces-in-move-that-may-make-buying-a-home-easier\/wcm\/4d221c2f-5cc4-4fe8-af01-ccda3fb910d4\" target=\"_blank\" rel=\"noopener noreferrer\">Mortgage Stress Test Changes Coming to Make Buying A Home Easier<\/a> by Geoff Zochodne | Vancouver Sun<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The federal government and a federal banking regulator are planning to tweak mortgage stress tests in time for the busy spring home-buying season, a move that could make it easier &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2020\/02\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-14985","post","type-post","status-publish","format-standard","hentry","category-mortgage"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Mortgage Stress Test Changes Take Effect on April 6th Aimed at Adjusting The Benchmark Rate &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2020\/02\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Mortgage Stress Test Changes Take Effect on April 6th Aimed at Adjusting The Benchmark Rate &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"The federal government and a federal banking regulator are planning to tweak mortgage stress tests in time for the busy spring home-buying season, a move that could make it easier &hellip; [read more]\" \/>\n<meta name=\"twitter:creator\" content=\"@RoryClipsham\" \/>\n<meta name=\"twitter:site\" content=\"@RoryClipsham\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Rory Clipsham\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2020\\\/02\\\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2020\\\/02\\\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\\\/\"},\"author\":{\"name\":\"Rory Clipsham\",\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/#\\\/schema\\\/person\\\/0672b9777e67473b9bd9247df49499c7\"},\"headline\":\"Mortgage Stress Test Changes Take Effect on April 6th Aimed at Adjusting The Benchmark Rate\",\"datePublished\":\"2020-02-24T19:11:00+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2020\\\/02\\\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\\\/\"},\"wordCount\":856,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/#\\\/schema\\\/person\\\/0672b9777e67473b9bd9247df49499c7\"},\"articleSection\":[\"Mortgage\"],\"inLanguage\":\"en-CA\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2020\\\/02\\\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2020\\\/02\\\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\\\/\",\"url\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2020\\\/02\\\/mortgage-stress-test-changes-take-effect-on-april-6-aimed-at-adjusting-the-benchmark-rate\\\/\",\"name\":\"Mortgage Stress Test Changes Take Effect on April 6th Aimed at Adjusting The Benchmark Rate &#8226; 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