(Ottawa) The interest rate used in stress tests for Canadians looking for a mortgage was maintained on Friday by the federal banking regulator and the Department of Finance.
The Office of the Superintendent of Financial Institutions (OSFI) said the minimum allowable rate for uninsured mortgages would remain the higher of the two rates between the mortgage contract plus two percentage points and 5.25%.
Meanwhile, the finance ministry, which sets the minimum allowable rate for insured mortgages, has also announced that it will keep its stress testing rate at its current level.
Low interest rates helped Canadians borrow money to buy a home, but also added to their debt load as house prices soared.
Changes in stress test rates affect the amount Canadians can borrow to buy a home.
According to OSFI, in an environment characterized by increased household debt and low interest rates, it is essential that lenders set guidelines to ensure that borrowers can continue to repay their mortgages under more adverse conditions. .
“The current economic uncertainty reinforces the importance of sound mortgage underwriting before potential income disruptions occur,” said Assistant Superintendent Ben Gully.
In a statement, Finance Minister Chrystia Freeland said maintaining the current minimum allowable rate would ensure prudent underwriting standards for insured mortgages.
“We will continue to monitor the housing market and review the minimum allowable rate, in order to adjust it as needed,” said Mme Freeland.
OSFI changed its stress test rate earlier this year and has committed to reviewing and reporting that rate at least every December.
Prior to the change that took effect in June, the rate was the higher of the mortgage contract rate plus two percentage points or the Bank of Canada’s five-year benchmark rate of 4.79% at the time.
Friday’s decision comes as the Bank of Canada signals it is preparing to raise interest rates as early as April.
Changes in the central bank’s key rate affect the prime rates of major Canadian banks, which are used as benchmarks for, among other things, variable rate mortgages and home equity lines of credit.
A change in the Bank of Canada’s overnight rate can also affect bond yields, which in turn can impact the rates charged by lenders for fixed rate mortgages.