Viewed as a move that help homeowners review options at renewal time, a rule change is seen as a ‘huge win’ for borrowers and brokers alike
Now it’s official: as of last week, borrowers with an uninsured mortgage no longer need to meet a minimum qualifying rate when switching their lender at renewal. Long viewed as a rule that weighted the renewal process in favour of their existing lender, its removal has spurred expectations of more competition in the mortgage market – and a potential boon for mortgage brokers.
Last week’s change rubber-stamps a decision confirmed by the banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), at the end of September. It means borrowers with an uninsured mortgage no longer have to prove they can handle a contract rate of either two percentage points above their agreed rate or 5.25% – whichever is higher – when switching to a new lender at renewal, provided their amortization schedule and loan amount remain the same.
The adjustment is one that will be welcomed by brokers and borrowers alike, according to Toronto-based mortgage agent Micky Khaneka (pictured top) of DLC Clear Trust Mortgages.
He told Canadian Mortgage Professional that the news marks a “huge win” for borrowers, opening the door to more options and a potentially lower rate at renewal time than they might have otherwise had with their current lender. “At the very least, they can shop around and see what’s being offered elsewhere before they renew their existing mortgage,” he said.
“If they’re in a position to move and now this puts them in a better position to move, then why not take that advantage and shop around for the lowest rates?”
October saw a 7.7% rise in Canadian home resales, driven by interest rate cuts. However, George Hugh, CEO of Taurus Mortgage Capital, warns brokers not to expect a market boom in 2025.https://t.co/rS1MF48U3u#Mortgage #HousingMarket #CanadaHousing
— Canadian Mortgage Professional Magazine (@CMPmagazine) November 21, 2024
Is competition about to skyrocket among mortgage lenders?
The requirement to stress test when switching lenders at renewal was often viewed as a deterrent to uninsured mortgage holders, who could avoid that step simply by renewing with their existing lender.
It also kept many potential clients out of brokers’ reach by seemingly making it more appealing for those borrowers to renew with the same lender instead of looking around for other options.
Now, though, brokers could be presented with a fresh new slate of borrowers hoping to find the most competitive mortgage rate – and Khaneka said top brokers are already primed and ready for a possible influx of new business.
“It definitely creates healthy competition in terms of shopping around for the lowest rate for these individuals and even for us as brokers, I think it puts us at the forefront,” he said. “We have this huge responsibility to guide people through this process. So I think this allows us to really use what we have and help people navigate these times.”
The change is one that’s already having an impact on brokers’ marketing as they gear up for the prospect of more homeowners seeking guidance about their renewal options.
Khaneka said his team has been proactively reaching out to existing clients with a six- to eight-month heads up about what their options may be, and offering to schedule a call to discuss their decision. “We’re also sending out news updates as to what’s happening,” he said. “It’s always better to be informed than not.”
His team’s approach: “Let’s communicate effectively,” he said. “Let’s give clients the information that they need that better helps them strategize for these upcoming times.”
Why the stress test removal could help borrowers absorb renewal pain
The removal of the stress testing requirement also offers an important boost for homeowners who took out their mortgage during the COVID-19 pandemic, when rock-bottom rates prevailed, and are now having to renew their mortgage at much higher borrowing costs.
A glut of those renewals is on the way in the next two years – and many borrowers are understandably apprehensive about the prospect of renewing. “People are nervous, especially when we hear all the news with rates,” Khaneka said. “As much as rates are starting to come down, they’re still relatively much higher than [when borrowers] initially took on that undertaking.
“Their existing lenders now know that if they don’t offer them the lowest rate, the probability of the client just walking out the door and then someone else or the competition scooping them up is a lot higher than it was before. So I think it’s definitely good for the borrowers and applicants. I feel like they haven’t had a break with all this news about rates in the last two years, so this is momentum that we need.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
