It’s a nonsensical double standard to apply the stress test in instances where all aspects of the mortgage haven’t changed, except for the lender
In the current high-rate environment, many homeowners are desperately looking for cheaper rates when they renew their mortgage. Here’s the thing: Uninsured borrowers who stick with their current lender won’t faceIf this seems like a nonsensical double standard, that’s because it is. The truth is, there is zero rationale for applying the stress test in cases where all aspects of the mortgage – except for the lender – haven’t changed.
OSFI’s reasoning is that all borrowers should be stress tested any time a new mortgage is taken out, since it requires new underwriting. But discouraging switches has a real, material impact: borrowers who stick with their incumbent bank pay on average 6.1 basis points more than a new customer. Meanwhile, those who make a switch will pay 10.2 basis points less than those who stay … if they can stomach that stress-test hurdle.
“It is important to emphasize that these borrowers present the same risk in either case, they have the same income and are seeking the same mortgage on the same house. In fact, switching, or the credible threat of switching, may actually lower the risk of a borrower’s inability to repay their mortgage to the extent it results in lower interest rates or other more preferential financial terms,” the Competition Bureau said in its submission.
Mortgage Borrower Stress Risk Osfi Switching Rate Bank Of Canada Canada OSFI
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