Stress-Test-Free Transfers/Switches for Renewal or Mid-Term Transfers

Until recently, switching to a new lender for a better rate—whether at renewal or during the term—required borrowers to requalify under the federal stress test. This meant qualifying at either 5.25% or the contract rate plus 2%, whichever was higher.

With today’s elevated interest rates, this created a significant challenge, often preventing borrowers from meeting the stricter qualification requirements and leaving them with no choice but to

The Canadian government implemented a significant policy update regarding mortgage insurance, effective December 16, 2024. This change introduces the option for borrowers with low-ratio mortgage default insured mortgages to switch lenders at renewal without undergoing a stress test. This allows you to qualify with the contract rate alone when switching lenders. This change removes a key barrier for borrowers seeking more competitive mortgage options.

What Does This Mean for Borrowers?

Previously, borrowers looking to switch lenders at renewal faced the challenge of re-qualifying under the mortgage stress test. This was particularly burdensome for those with higher Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. The new policy eliminates these barriers for certain borrowers by allowing:

• Insurable borrowers with elevated GDS/TDS ratios to switch lenders at renewal without needing to pass the stress test.
• Qualification at the contract rate instead of the contract rate plus 200 basis points (or 5.25%, whichever was higher).

This update provides borrowers with increased flexibility and more opportunities to compare lender offers, potentially securing better terms.

Eligibility Requirements

Borrowers must meet specific criteria:

• Loan-to-Value (LTV): Must not exceed 80%.
• Mortgage Type: The rule applies exclusively to renewals; early renewals are excluded.
• Original Lender: Must be federally regulated and have stress-tested the borrower at the time of the original mortgage approval.
• New Lender: Must be an approved lender under the National Housing Act.
• Amortization: The repayment schedule must remain unchanged.
• Loan Amount: Cannot increase, except for up to $3,000 to cover transaction-related costs like penalties or fees.

Why It Matters for Borrowers

This policy represents a substantial benefit for consumers by reducing obstacles to switching lenders at renewal. It encourages a more competitive lending environment, enabling borrowers to:

• Explore alternative lenders and secure potentially better rates with a wider range of lender options.
• Avoid the stress test at renewal even if financial ratios exceed previous limits, and secure improved terms without the constraints of a stress test at renewal.

Ultimately, this change empowers borrowers with more choices and fosters greater market competition.

How To Take Advantage of This?

Not all lenders may abide by this rule, neither are lenders obligated to do so.  It will be up to lenders to determine how competitive they wish to remain by adopting the new insured-switch rule.  Consult with your expert mortgage broker to help you find and secure the best deals and lowest rates for your mortgage financing needs, whether you are looking to renew your mortgage or considering switching to a lower rate while still mid-term in your existing mortgage contract.

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