Minimum qualifying rate for uninsured mortgages
As of December 12, 2022
The greater of the mortgage contract rate plus 2% or 5.25%.
Why the minimum qualifying rate for uninsured mortgages is important
A mortgage stress test is essential to ensure borrowers can still make payments if they experience negative financial shocks. These might include:
- A reduction in income
- An increase in mortgage interest rates
- An increase in household expenses
One of the biggest risks for financial institutions is mortgages. If borrowers can’t repay their loans, it could have a negative impact on Canada’s financial system. By qualifying borrowers at a higher interest rate than the actual rate they’ve agreed to with their lender, we’re ensuring lenders remain careful with their lending practices.
How we set the minimum qualifying rate for uninsured mortgages
We determine what the rate is based on:
- data gained from monitoring Canada’s financial institutions
- a range of vulnerability indicators in the housing market and the economic environment
- consulting with the Department of Finance Canada and the Bank of Canada
We review and share the minimum qualifying rate for uninsured mortgages at least every December.
The buffer and the floor
There are two components to the minimum qualifying rate for uninsured mortgages:
- The buffer: Currently set at 2%, this is a safety margin that shows that borrowers can absorb some negative impacts to their finances
- The floor: Currently set at 5.25%, this number accounts for risks that can emerge from changes in the broader economy
Stress testing and Guideline B-20
Guideline B-20 sets out expectations that we expect federally regulated lenders to follow when granting an uninsured mortgage.