Superintendent Peter Routledge confirmed that OSFI will formally announce this change on November 21, 2024, as part of the regulator’s quarterly release pilot.

This change will allow borrowers to switch lenders at renewal without having to prove they can afford their mortgage at a higher rate.

The stress test on uninsured mortgages was introduced in January 2018 as part of OSFI’s B-20 Guideline, which required borrowers with uninsured mortgages—those with a down payment of 20% or more—to qualify at the higher of the Bank of Canada’s five-year benchmark rate or their mortgage rate plus 2% when switching lenders. The policy was designed to ensure borrowers could handle potential future interest rate increases.

OSFI told CMT this change applies specifically to straight switches of uninsured mortgages—cases where borrowers switch lenders while maintaining the same loan amount and amortization schedule.

Why now?

The move marks a shift from OSFI’s stance earlier this year. As recently as June, the regulator had doubled down on maintaining the stress test for uninsured mortgage switches, citing the importance of risk management.

But OSFI told CMT there are two reasons behind its decision.

“First, we are listening to what we have heard from industry and from Canadians about the imbalance between insured and uninsured mortgagors at the time of mortgage renewal,” a spokesperson said.

“Second, when we look at the data over time, we have observed that the prudential risks that this was intended to address have not significantly materialized,” they added. “As a prudential regulator we enable banks and lenders to compete and take reasonable risks.”

OSFI says it is working with federally regulated financial institutions (FRFIs) to ensure a smooth transition for this rule change, which is expected to increase competition among lenders while providing more options for borrowers with uninsured mortgages.

What this means for borrowers

For borrowers with uninsured mortgages approaching renewal, the policy shift will remove a major hurdle.

The removal of the stress test will allow these borrowers to shop around for better rates without being disqualified, potentially easing financial strain at a time when mortgage rates remain elevated.

“This is all about fairness to borrowers,” Ron Butler of Butler Mortgage told CMT.

“It never made any sense to apply a stress test on a renewal,” he added, noting that the current lender doesn’t even check if the borrower is still employed at the time of renewal, whereas the new lender would have to perform a full underwriting of the mortgage, making the stress test redundant in these cases.

“This make getting a better rate at renewal more possible,” he said.

Lauren van den Berg, CEO & President of Mortgage Professionals Canada (MPC), agreed, emphasizing how important this policy change is for homeowners, calling it a “significant win for Canadians.”

“This change ensures that homeowners can secure the best rate that fits their financial needs without unnecessary barriers, giving them greater choice and flexibility,” she said. “It also encourages healthy competition among lenders, leading to better options for borrowers.

Mortgage Professionals Canada had long been advocating for the removal of the stress test on uninsured mortgage renewals, and the association is “thrilled to see it come to fruition,” said van den Berg, noting that the change supports a more balanced and competitive market for homeowners across the country.