Switching your loan to another provider is never a simple task, but it will become easier thanks to a prospective policy change promised by our banking regulator, the Office of the Superintendent of Financial Institutions (OSFI).
It has announced it will drop the requirement for a stress test when homeowners renew their mortgage as they switch to another bank.
The OSFI says lenders will not be required to apply the minimum “qualifying rate” when issuing uninsured mortgages at the renewal stage. In other words, there’ll be no stress test.
If you’re looking to renew your mortgage with another lender, and you’ll retain the same loan amount and repayment schedule, then you won’t have to jump through hoops to prove your ability to service the loan.
News of the policy change was first published in the Globe and Mail.
So what is the stress test?
When you successfully apply for a mortgage, a lender will not offer the absolute maximum it calculates you can afford. Instead, it must apply a 2% buffer.
This buffer is designed to protect you in the event that interest rates go 2% higher than the prevailing mortgage rate at the time you are issued the loan.
If you’re seeking to renew a mortgage with your existing lender, this stress test will no longer apply, either.
The “qualifying rate” regulation, which is enforced on lenders by the OSFI, is a commonsense approach used in other countries, including Australia and New Zealand.
The New Zealanders have recently tightened their regulations to stop financial institutions lending increasing amounts to borrowers as the property market starts to take off – a key business behaviour seen as feeding property booms. The move is designed to not only further protect borrowers but prevent lenders from further stimulating a property price break-out, which benefits their businesses.
The Globe and Mail said OSFI would formally communicate its plan in November.