No More Stress Test on Mortgage Renewals for Some

by Barbara Scarlett

Can you switch to another lender if your mortgage is up for renewal? Until November 19th, 2024, that depended on the type of mortgage you have. If you have an insured mortgage, yes you can shop around and move to another lender without having to undergo the mortgage stress test. Read on.

About the Stress Test

Under the mortgage stress test, to qualify for a mortgage, a borrower is required to qualify at the interest rate of 5.25% or the contract rate plus 2 points, whichever is greater. So with a mortgage of 4.50%, the borrower’s affordability is based on the higher rate of 6.50%. That is 4.50% plus 2%.

An Uninsured Mortgage Has Required a Stress Test

However, if you have an uninsured mortgage and want to switch lenders you are subject to the stress test. That is, you are treated the same as an individual applying for a mortgage on a home purchase, not a renewal. The only way to avoid the stress test is to stay with your existing lender, a disadvantage compared to people whose mortgages are insured. You worked hard to avoid the added insurance cost on your mortgage when you purchased your home by having a downpayment of at least 20% if not more of the purchase price. Yet on renewal, you do not have the privilege of shopping around without being subjected to the stress test–no more.

Now There Is Flexibility to Switch Between Federally Regulated Lenders

As of November 20th, 2024, uninsured mortgage renewals are no longer subject to the stress test if you switch from one federally regulated lender to another. Though it removes some of the imbalance, it does not apply to provincially regulated credit unions and mortgage finance companies. According to canadianmortgagetrends.com, “The move by OSFI is seen as a win for mortgage borrowers, offering more flexibility to switch lenders in search of better rates or more favourable terms. It also comes at a critical time for Canadian homeowners, with roughly 70% of all outstanding mortgages expected to come up for renewal by the end of 2026.”

It is Though a Straight Switch

The elimination of this rule applies if you are not increasing your loan amount or the amortization. This should create competition among lenders and better rates and terms. The next great step is to eliminate the stress test entirely.

Source: Canadian Mortgage Trends, written by Steve Huebl.