Minister of Finance Bill Morneau has announced changes to the benchmark rate used to determine the minimum qualifying rate for insured mortgages.
Instead of the Bank of Canada 5-Year Benchmark Posted Rate, the new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. These changes will come into effect on April 6, 2020.
The new benchmark rate will be published on a Wednesday and come into effect the following Monday.
“For many middle-class Canadians, their home is the most important investment they will make in their lifetime. Our government has a responsibility to ensure that investment is protected and to support a stable housing market. The government will continue to monitor the housing market and make changes as appropriate. Reviewing the stress test ensures it is responsive to market conditions,” Morneau said.
The minimum qualifying rate for insured mortgages will now be the greater of the borrower’s contract rate, which is the mortgage interest rate agreed to by the lending institution and the borrower; or the new benchmark rate.
The change comes after a recent review by federal financial agencies, which concluded that the minimum qualifying rate should be more dynamic to better reflect the evolution of market conditions. Overall, the review concluded that mortgage standards are working to ensure that home buyers are able to afford their homes even if interest rates rise, incomes change, or families are faced with unforeseen expenses. This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.
The new Benchmark Rate for insured mortgages will be published weekly on the Bank of Canada’s website, and will be based on submitted mortgage insurance application contract rates. If, on any given week, there are any delays in updating the new Benchmark Rate, the previous week’s published Rate will stand until a new Rate is published.