OSFI’s Removal of the Stress Test for Conventional Mortgage Transfers: What It Means for Homeowners

The Office of the Superintendent of Financial Institutions (OSFI) introduced a change effective November 21, 2024 to the rules surrounding conventional mortgage renewals. Borrowers transferring their mortgage to a new lender at maturity will no longer need to undergo the stress test qualification process. This adjustment is expected to make it easier for Canadian homeowners to secure more competitive rates from banks and other lending institutions.

How Mortgage Renewals Worked Under the Previous Rules

When a mortgage term comes to maturity, lenders typically send a renewal offer to the borrower, presenting various options for fixed or variable terms, often ranging from 1 to 5 years. If the borrower chooses to stay with the same lender, requalification is not required, assuming that payments have been made on time, property taxes are current, and the home insurance policy remains in good standing.

While this process is straightforward, many borrowers simply accept the renewal offer without exploring other options. This is often due to:

1. Avoidance of requalification: Switching to a new lender required the borrower to gather financial documents and go through a potentially cumbersome application process.

   
   

2. Changes in financial circumstances: Factors such as transitioning to self-employment, a lower credit score, or increased debt obligations could make the requalification process more challenging.

   
   

These hurdles, coupled with the stress test requirements, often discouraged borrowers from considering alternatives.

What the New Rules Mean

Under the updated guidelines, borrowers transferring their mortgage to a new lender at maturity will no longer need to undergo the stress test, provided the transfer is dollar-for-dollar. This means the mortgage amount and the amortization period must remain unchanged.

Previously, the stress test when switching to a new lender, required borrowers to requalify at current rates (ie: 5.25% or 2% above the contract rate). By removing this requirement for transfers, OSFI has made it simpler for borrowers to explore competitive offers.

Practical Implications for Homeowners

This regulatory change introduces several practical benefits for Canadian homeowners:

1. Greater Flexibility to Shop Around

   Borrowers can now compare rates and terms from different lenders without the concern of requalifying, making it easier to find a better deal.

   
   

2. Improved Affordability

   Even a modest reduction in mortgage rates can translate into meaningful savings over the term of a mortgage. For example, a 0.25% difference in the rate could result in thousands of dollars saved.

   
   

3. Encourages Competitive Offerings

   With borrowers now having more flexibility to switch lenders, financial institutions may need to offer more attractive terms to retain their clients.

   
   

4. Timely Relief for Many Borrowers

   Over 1.2 million fixed-rate mortgages are expected to mature in the next two years, so this adjustment comes at an opportune time for homeowners looking to manage their finances more effectively.

   
   

A Measured Step Forward

This change simplifies the mortgage renewal process for homeowners and removes a barrier that previously limited their ability to shop around. While it won’t solve all affordability concerns, it does provide an additional tool for borrowers to navigate a rising interest rate environment and potentially reduce their financial burden.

At OZ Capital, we believe in making wise financial decisions. These changes reflect a broader shift toward helping individuals make informed choices that benefit their financial well-being.

Have Questions or Want to Learn More?

If you’re exploring mortgage renewal options or considering how alternative investments can support your portfolio, we’d be happy to discuss your goals.

Reach out to learn how OZ Capital can help.