OTTAWA ─ February 18, 2020 ─ Office of the Superintendent of Financial Institutions
Today the Office of the Superintendent of Financial Institutions (OSFI) announced that it is considering a new benchmark rate for determining the minimum qualifying rate for uninsured mortgages.
OSFI’s mortgage underwriting guideline (B-20) sets the minimum qualifying rate for uninsured mortgages. Currently, the minimum qualifying rate is the higher of the contractual mortgage rate plus two percent, or the five-year benchmark rate published by the Bank of Canada. The current benchmark rate is based on the posted rates from the six largest banks in Canada.
On January 24, 2020, OSFI indicated that it was reviewing the benchmark rate (or floor) used for qualifying uninsured mortgages. OSFI has observed that the gap between actual contract rates and the current benchmark rate has widened, suggesting a less responsive floor than originally intended. The goal of the review is to identify a measure that is more accurate and responsive to market changes.
OSFI is considering replacing the current benchmark rate with the weekly median five-year fixed insured mortgage rate from mortgage insurance applications, plus a two percent buffer. This rate is also the new benchmark rate for insured mortgages, as announced today by the Minister of Finance, following consultations with OSFI and other federal financial agencies.
The proposed new benchmark for uninsured mortgages is based on rates from mortgage applications submitted by a wide variety of lenders, which makes it more representative of both the broader market and fluctuations in actual contract rates. In addition to introducing a more accurate floor, OSFI’s proposal maintains cohesion between the benchmarks used to qualify both uninsured and insured mortgages.
OSFI is seeking input from interested stakeholders on this proposal by email to firstname.lastname@example.org before March 17. OSFI will communicate final amendments to the benchmark rate for uninsured mortgages by April 1, with changes effective on April 6.
“Sound mortgage underwriting and B-20 contribute to financial stability throughout the economic cycle. Continually reviewing our prudential measures is part of an effective regulatory framework. This proposal aims to address the limitations of the current benchmark rate while preserving the integrity of the overall qualifying rate.”
— Ben Gully, Assistant Superintendent, Regulation.
- OSFI sets the minimum qualifying rate for uninsured mortgages, while the Minister of Finance sets the minimum qualifying rate for insured mortgages.
- Consultation Letter
- Consultation FAQ
- Guideline B-20
- Guideline B-20 Information Sheet
- Speech: Sound Mortgage Underwriting: Foundation for Stability
The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.