Canada’s mortgage stress test has lengthy been criticized by debtors as a barrier to qualifying for financing. However in response to the nation’s prime banking regulator, lenders themselves have quietly supported protecting it in place.
Talking throughout a Mortgage Professionals Canada fireplace chat with CEO Lauren van den Berg on Tuesday, OSFI Superintendent Peter Routledge stated federally regulated lenders haven’t requested the regulator to weaken or take away the minimal qualifying charge (MQR).
As a substitute, he recommended lenders see it as stabilizing, each financially and competitively.
“They prefer it as a result of it lowers their prices and removes aggressive rivalry in lending requirements for debt serviceability,” Routledge stated. He additionally pointed to Financial institution of Canada analysis that discovered the stress take a look at lowers the incidence of mortgage default throughout credit score cycles, lowering credit score losses for lenders.
The stress take a look at, at present the upper of 5.25% or the contract charge plus two proportion factors, is embedded in OSFI’s B-20 underwriting guideline. Routledge acknowledged it stands aside from typical OSFI observe. “That’s uncommon in that it’s a rule, de facto, not only a precept,” he stated.
Whereas Routledge stated the measure has been efficient, he additionally famous it “isn’t normal working process for OSFI,” including the regulator stays open to modernization proposals. He stated lenders themselves, nevertheless, haven’t prioritized modifications to B-20 and have as a substitute centered their suggestions on different areas of regulatory modernization.
OSFI has just lately emphasised modifications similar to streamlining approvals and eradicating pointless regulatory content material, together with reviewing elements of capital therapy the place it sees room for cautious adjustment.
How loan-to-income limits match into the framework
Whereas business consideration has more and more turned to loan-to-income limits, Routledge stated they aren’t supposed to interchange the stress take a look at, however to function a backstop throughout future housing booms. After a pilot interval, OSFI has kept the LTI framework in place as a part of its broader mortgage danger strategy.
Routledge stated the LTI circulation restrict is designed to cap, at a portfolio stage, how a lot high-LTI lending a lender can do in a given interval, whereas giving establishments flexibility in how they handle inside that ceiling. As of at the moment, he stated the LTI restrict shouldn’t be binding.
“The previous couple of quarters, the % of uninsured mortgages with excessive mortgage to revenue ratios has different between 16% and 18%,” he stated. “So it doesn’t bind a single lender at the moment.”
“We don’t suppose the LTI is binding till that combination ratio, which is 16 to 18, will run into the mid-20s,” he added. “That could be a characteristic not a bug…That’s the intent.”
He stated the objective is to stop one other cycle of “extra leverage” that may gas “fragile home worth will increase,” pointing to the pandemic-era housing increase as a transparent instance of the dynamic OSFI is making an attempt to keep away from.
Renewals anticipated to pressure some households
Routledge additionally warned a subset of debtors renewing mortgages over the following yr will face vital fee strain, significantly those that purchased close to peak costs in the course of the pandemic or held fixed-payment variable mortgages.
He highlighted debtors renewing into “considerably” increased funds, together with these whose mortgage balances are increased than they have been 5 years in the past, with a shorter remaining time period and, in some instances, house values under their buy worth.
“Systemically it gained’t pressure the banking system, however it’s going to pressure these households,” he stated. He described it as “an unlucky end result,” and stated lots of these debtors could have few choices past renewing with their present lender as a result of switching could be troublesome when loan-to-value and complete debt service metrics are stretched.
Routledge estimated the cohort could possibly be round 5 to 10 per cent of debtors renewing if charges and residential costs maintain the place they’re, however stated that group may develop if circumstances change.
He stated safeguards together with robust financial institution capital ranges, underwriting self-discipline and present macro-prudential instruments ought to stop broader monetary instability. He additionally burdened mortgage professionals will play a central position in lowering borrower hardship.
“Mortgage professionals, in the event that they’re alert, early, proactive, can reduce the struggling,” he stated. Even when it doesn’t instantly translate into income, he added, purchasers keep in mind who helped them by the onerous durations. “That builds your personal private franchise.”
AI, fraud and digitization
Past housing, Routledge pointed to digitization because the broader power set to reshape monetary companies, together with the mortgage channel, over the following decade.
On AI particularly, he stated it’s “an actual amplifier” of cyber and third-party danger, and OSFI is supervising operational danger extra assertively as threats intensify. On the similar time, he cautioned in opposition to regulators getting forward of how companies use the instruments.
He stated OSFI’s strategy is to grasp the expertise properly sufficient to determine enterprise mannequin dangers which will emerge, with out blunting innovation. “First do no hurt. Keep out of the way in which of innovation,” he stated, noting productiveness features from new instruments finally help monetary stability.
He stated new digital merchandise and rails, together with tokenized fee devices, will seemingly make transactions cheaper and extra environment friendly, however may additionally introduce new operational and financial-crime dangers that companies might want to handle.
“The subsequent 10 years are going to be fairly transformational in all industries, together with the mortgage dealer business,” he stated. “Fluency in these new applied sciences is form of desk stakes.”
Watching non-public lending
Routledge additionally touched on how OSFI is at present monitoring progress in non-public and unregulated lending channels, which have traditionally accounted for roughly one to 2 per cent of excellent mortgage balances and about eight to 10% of originations. Whereas present ranges stay inside historic norms, he stated a pointy enhance past these ranges would increase concern.
“These lenders are assembly a necessity out there, so I don’t begrudge them,” he stated. “However sudden progress in that business can produce extra systemic danger and I feel we’ve got to concentrate on it.”
Routledge framed OSFI’s broader goal as balancing resilience and progress after greater than a decade centered closely on security following the worldwide monetary disaster. He stated the regulator has been eradicating out of date steerage—some 600 pages price—and making focused changes the place it sees room to ease with out undermining stability.
“We’re making an attempt to hit singles, not house runs,” he stated, describing OSFI’s use of “very cautious, calibrated bets,” to help progress whereas preserving resilience.
Regardless of housing pressures and financial uncertainty, he struck an optimistic tone concerning the nation’s long-term outlook. “I’m a long-term bull on Canada,” he stated, including a resilient monetary system ought to assist the financial system adapt to future shocks quite than amplify them. “I feel our financial system goes to adapt quicker than folks count on to a brand new mannequin for competing in a world market.“
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LTI mortgage professionals canada mortgage stress test Office of the Superintendent of Financial Institutions OSFI Peter Routledge
Final modified: February 17, 2026
