The use of Canada’s benchmark rate in administering the mortgage stress test is currently under review, according to an official with the Office of the Superintendent of Financial Institutions (OSFI).
In a speech to the C.D. Howe Institute, Ben Gully Assistant Superintendent, Regulation Sector, said the use of the benchmark qualifying rate as the floor of Guideline B-20 stress testing for uninsured mortgages is “not playing the role that we intended.”
Uninsured mortgages (those with more than 20% down payment) are currently stress-tested on the higher of the borrower’s contract rate plus 200 bps, or the benchmark rate, which is currently 5.19%.
“For many years, our data showed the difference between the benchmark rate and the average contract rate was about 2%. This provided a healthy buffer,” Gully said. “However, the difference between the average contract rate and the benchmark has been widening more recently, suggesting that the benchmark is less responsive to market changes than when it was first proposed.”
Indeed, fixed mortgage rates have been on a downward trajectory since the beginning of 2019.
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