OSFI's new mortgage test and its impact on banks and borrowers

In a major change for Canada's housing market, the country's banking regulator, known as the Office of Banking and Financial Supervision (OSFI), is implementing a new test for mortgage loans. The purpose of this measure is to prevent giving excessive loans to people with heavy debts. The new test, which periodically monitors the loan-to-income ratio, tries to ensure that the percentage of uninsured loans that are more than 4.5 times the borrower's income remains below the threshold. This test is generally applied to bank samples and not to individual home buyers.
This regulatory measure is designed to prevent the accumulation of high loans in the era of low interest rates. This new test, along with lower interest rates, is expected to have a significant impact on the mortgage market. This action is known as an important step towards maintaining financial stability and preventing economic crises in the future.


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