Recent Mortgage Rule Changes
It’s been busy for mortgage rule changes, with both the Department of Finance and OSFI introducing significant updates.
On the heels of the federal government’s detailed framework for expanding 30-year amortizations and increasing the insured mortgage cap, Canada’s banking regulator, OSFI, announced its own major reform: the removal of the stress test requirement for uninsured straight mortgage switches.
Here’s a breakdown of the changes that will affect lenders, brokers, and borrowers alike:
1. Federal government’s mortgage rule changes (Effective Dec. 15, 2024) 30-year amortization expansion:
- Eligibility: Applies to high loan-to-value mortgages (80% or more) for:
- First-time homebuyers, or
- Buyers of newly constructed homes.
- First-time homebuyer definition: To be considered a first-time homebuyer for the purpose of 30-year insured mortgages, a borrower must meet one of the following criteria:
- The borrower has never purchased a home before; or
- In the last 4 years, the borrower has not occupied a home as a principal place of residence that either they themselves or their current spouse or common-law partner owned; or
- The borrower recently experienced the breakdown of a marriage or common-law partnership. On this point, the regulations will follow the approach that Canada Revenue Agency has taken with respect to the Home Buyers’ Plan.
- Newly constructed homes: Must not have been previously occupied for residential purposes. Interim occupancy periods in newly built condos do not disqualify eligibility.
Mortgage insurance cap increase:
- New price cap: The insured mortgage cap is rising from $1 million to $1.5 million. To qualify for insurance:
- The insured property must have a value of $1,499,999 or less.
- Down payment requirements:
- 5% for the portion of the purchase price up to $500,000.
- 10% for the portion between $500,000 and $1.5 million.
- Occupancy requirement: Applies only to properties occupied by the borrower or a close relative.
2. OSFI announcement: Removal of stress test for straight mortgage switches (Effective Nov. 21, 2024)
The Office of the Superintendent of Financial Institutions (OSFI) confirmed that OSFI will remove the mortgage stress test requirement for uninsured straight mortgage switches starting Nov. 21, 2024. This change will allow borrowers to switch lenders at renewal without having to qualify at the higher stress test rate.
- Background on the stress test: Introduced in January 2018 under OSFI’s B-20 Guideline, the stress test 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%.
- Impact of the change: The upcoming adjustment applies specifically to straight switches of uninsured mortgages, where borrowers move to a new lender but maintain the same loan amount and amortization schedule. This will make it easier for borrowers to shop around for better renewal rates without the stress test burden.
Contact your favourite mortgage broker to learn more or take advantage of these positive changes!
Candace Perko, Mortgage Broker
