Conservative leader Andrew Scheer told an industry gathering earlier this month that, if elected this fall, he would revise the mortgage stress test. Specifically, he promised a meeting of the Canadian Home Builders' Association that borrowers would no longer need to meet the test when they switch lenders.
As it currently stands, the stress test does not apply if borrowers are renewing with their current lender. This, according to Scheer, gives the bank an undue amount of power. So far, Canada's banking regulator has pledged to keep the test as is pending further study.
Even if nothing changes, there are things you can do to get the best mortgage rate at renewal time.
Why is the Stress Test with Switches a Problem?
There's a basic reason why the stress test applying to switches, and not current lenders, might make it tough on consumers. Since your current bank knows you have to clear more hurdles to get a new mortgage elsewhere, they might offer less favourable terms. So at renewal time, you may feel a little under the gun from your current lender.
Even if you do shop around, you may have a problem getting a good rate. If new lenders see you might not be able to meet a new mortgage stress test, they might not offer you a good deal. After all, the stress test only applies to federally regulated banks. Non-regulated lenders may not be motivated to offer favourable terms on par with institutions that must apply the test.
It comes down to the consumer having fewer potential options, and less strategic power to get the mortgage that's best for them.
What Do Other Politicians Say?
So far, Canada's regulator has not promised to make any changes to the mortgage stress test. But Carolyn Rogers of the Office of the Superintendent of Financial Institutions Canada (OSFI) said in February the body was aware of the test's unintended side effects.
As a result, they would continue to monitor the market, including those unintended side effects like shifts to unregulated lenders and the inability of many first-time homebuyers to enter the market. However, Rogers reaffirmed that the regulations were in part intended to protect Canadians from unsustainable debt loads and that motivation would stay in place.
What Can Consumers Do?
Although the current mortgage market may seem challenging, there are ways you can ensure the best rate on your home. It's important to remember that most people usually can meet the mortgage stress test at renewal time. Typically, they have been paying off their mortgage, so their debt is lower. Often, their household income is higher.
But even if that's not the case, you can renegotiate. You do not have to simply agree to the auto-renewal terms offered by your bank. Give them a call and ask to discuss different terms. You can also shop around to other lenders, and show those quotes to your bank. This may give you some more negotiating power.
Compare Mortgage Rates
Even if you are months away from renewal time, it may be smart to start looking at your options. Compare mortgage rates so you'll know ahead of time what you may be able to afford or can expect to be approved for. With that knowledge, you can enter negotiations on solid footing.