Canada: New B-20 guidelines to toughen qualifying rules for uninsured mortgages

The office of the Superintendent of Financial Institutions (OSFI) has published the final B-20 guidelines designed to increase the difficulty of taking out uninsured mortgages. The guidelines aim to cool Canada’s housing market.

Coming into effect from January 1st, 2018, the new guidelines will mean that lenders will be required to perform tougher stress tests to measure a borrowers’ ability to repay their loan at a higher interest rate. Under the new rules, borrowers’ ability to repay will be tested at an interest rate either 200 basis points above the contractual mortgage rate or the Bank of Canada rate for a five-year fixed rate product, whichever is the greater.

Furthermore, the OSFI also stated that lenders will be required to improve their loan-to-value ratios so they will be more dynamic and responsive to risk. Jeremy Rudin, Superintendent at OSFI, commented on the guidelines, “These revisions reinforce strong and prudent regulatory regime for residential mortgage underwriting in Canada”.

"Under the new rules, borrowers’ ability to repay will be tested at an interest rate either 200 basis points above the contractual mortgage rate or the Bank of Canada rate for a five-year fixed rate product, whichever is the greater."
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