OSFI Consults on Minimum Qualifying Rate for Uninsured Mortgages
OSFI is proposing new minimum qualifying rate for uninsured mortgages under the Guideline B-20. The proposal for the qualifying rate for uninsured mortgages is the higher of the mortgage contract rate plus 2.00% or 5.25% as a minimum floor. OSFI also announced a proposal to revisit the calibration of the qualifying rate at least once a year to ensure it remains appropriate for the risks in the environment. Additionally, OSFI published a set of frequently asked questions (FAQs) on this consultation. The comment period on the proposal ends on May 07, 2021. OSFI will communicate final amendments to the qualifying rate for uninsured mortgages in Guideline B-20 by May 24, 2021, with a coming into force date of June 01, 2021.
In early 2020, OSFI had initiated a consultation process on the benchmark for the qualifying rate for uninsured mortgages contained in Guideline B-20 titled "Residential Mortgage Underwriting Practices and Procedures." OSFI had suspended this consultation in March 2020 due to the COVID-19 pandemic. OSFI has now issued a letter to relaunch the policy work on the qualifying rate with a new proposal and to reinforce the principles of sound mortgage underwriting in Guideline B-20, in light of the current economic environment. Guideline B-20 sets out the OSFI expectations for prudent residential mortgage underwriting, and is applicable to all federally-regulated financial institutions that are engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada.
The minimum qualifying rate adds a margin of safety that ensures borrowers will have the ability to make mortgage payments in the event of change in circumstances, such as the reduction of income or a rise in mortgage interest rates. Based on the OSFI analysis, this change in the qualifying rate would result in a reduction in the mortgage loan amount between 2% and 4%, holding the amortization steady. Also, while most borrowers will have a new qualifying rate that is higher than the rate they would have previously qualified under, OSFI estimated that up to 10% of borrowers would have exceeded individual bank’s Total Debt Service ratio thresholds. As mortgages are one of the largest exposures that most banks carry, ensuring that borrowers are able to repay their loans strongly contributes to the continued safety and soundness of financial system in Canada. Given the current risk environment, OSFI will be looking for heightened vigilance from federally regulated lenders in applying the principles of Guideline B-20 related to collateral management, income verification and debt servicing, combined Mortgage-HELOC [Home Equity Lines of Credit] loan plans, and risk governance.
Related Links
Comment Due Date: May 07, 2021
Effective Date: June 01, 2021
Keywords: Americas, Canada, Banking, Uninsured Mortgages, RRE, CRE, Mortgage Lending, Minimum Qualifying Rate, Guideline B-20, Credit Risk, FAQ, OSFI
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023