The Bank of Canada has announced in its July statement that it will hold the target overnight benchmark rate unchanged at 0.25%, as a result the Bank Rate stays at 0.50%.

With more and more Canadians being vaccinated and retail businesses re-opening, interest rate may start to hike sooner than expected. As per announcement in July, Bank of Canada intends to raise interest rate in second half of 2022.

In early April, the Office of the Superintendent of Financial Institutions (OSFI) proposed a change on qualifying rate for an uninsured mortgage (where borrowers have at least 20% down payment) from current 4.79% to 5.25%. Now it’s confirmed that the new rule will be in place on June 1, 2021 and apply to both uninsured and insured mortgages. New stress test will require mortgages to be qualified at the greater of: 

• OSFI-defined qualifying rate (5.25%) or

• Mortgage contract rate + 2%.

For example: If the mortgage contract rate is 2.29%, the new qualifying rate would be the 5.25%, instead of the current 4.79%. 

Who Will Be Impacted

Mortgages offered through Federal Regulated lenders including all six big banks.

Financial institutions and credit unions not regulated by OSFI are not required to implement such change. 

What You Need to Know

The borrowing power is estimated to be reduced by ~4% with increased qualifying rate. It varies based upon individual borrower’s circumstances.

Pre-approvals obtained prior to June 1st, 2021 will need to be re-qualified on new rule if the signed offer to purchase is dated after June 1st. 

Full approval obtained prior to June 1st, but it requests some critical material change (such as add/remove borrowers, changing the property, change/extend closing date…), the original approval will become null and re-qualification is required on new rule.