Stress Test Requirements Easing for Some Borrowers

The national bank regulator says it will no longer require borrowers to stress test if they’re moving their uninsured mortgage from an existing provider to another one.

This will make it easier for borrowers to switch lenders at renewal and forces the banks to be more competitive. Under the current rule, banks are less likely to offer more attractive interest rates to existing customers when they know these clients are unable to qualify for a mortgage elsewhere due to the stress test requirements.

The stress test was first introduced in January 2018, requiring borrowers to prove they can afford payments at a qualifying interest rate that is typically higher than the actual rate in their mortgage contract. More specifically, borrowers have to be approved for a rate of either the interest rate they they are green-lit for by their lender plus 2%, or 5.25% (the minimum qualifying rate), whichever is higher. The policy is aimed at ensuring homebuyers aren’t stretching their budgets to the max and they will still be able to make their monthly mortgage payments when interest rates go up.

This change, which comes into effect Nov. 21, applies specifically to straight switches of uninsured mortgages, where borrowers move to a new lender but maintain the same loan amount and amortization schedule.