Loan Zone: Canada’s new mortgage stress test rule

New regulation is akin to the U.S. rule of ‘ability to pay.’

Effective Jan. 1, federally regulated financial institutions in Canada are now required to meet the new Mortgage Stress Test Rule handed down from the Office of the Superintendent of Financial Institutions. While the rule won’t directly impact provincially regulated credit unions, there could be a trickle-down effect—resulting in both potential opportunity and risks for Canadian CUs.

The rule requires buyers with uninsured mortgages to prove they can afford payments based on the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99 percent) or their contract mortgage rate plus two percentage points. (Read more about qualified mortgages and the ability to repay in the U.S.)

Stephen Kerr, a partner at the Canadian law firm Fasken Martineau, Toronto, shares his perspective. Specifically, he describes how Canadian credit unions can evaluate their mortgage underwriting guidelines to prepare for and perhaps take advantage of the new rule.


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