Type of Publication: Letter
Revised: May 20, 2021
To: Federally Regulated Lenders
On April 8, 2021, OSFI published a letter proposing a new qualifying rate for uninsured mortgages (i.e., loan-to-value less than 80 percent) and reinforcing the principles of sound mortgage underwriting in Guideline B‑20 — Residential Mortgage Underwriting Practices and Procedures in light of the current economic environment.
OSFI received over 170 stakeholder submissions in response to its proposal to replace the current benchmark rate with a fixed floor. OSFI thanks those who provided comments. The Annex summarizes the key input from these submissions and OSFI’s response.
Today, OSFI confirms that it is moving forward with its proposal. Effective June 1, 2021, the qualifying rate for all uninsured mortgages should be the greater of the mortgage contractual rate plus 200 basis points or 5.25 percent. OSFI has updated Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures.
Following implementation, OSFI will closely monitor federally regulated financial institution (FRFI) lenders as part of its supervisory activity to ensure that they do not weaken their underwriting criteria, such as extending amortization periods or increasing debt service limits, in order to circumvent the revised qualifying rate for borrowers.
OSFI will review and communicate the qualifying rate at a minimum annually, every December, well in advance of the high-volume housing spring season. OSFI will make a decision based on data from its ongoing monitoring of FRFIs and analytical work on system-wide and sectoral developments. As well, OSFI will consult its federal financial regulatory partners, notably the Department of Finance Canada and the Bank of Canada.