Canada's Mortgage Regulatory Landscape

The Canadian mortgage market is regulated by several bodies that can change the rules at any time. The Office of the Superintendent of Financial Institutions (OSFI) oversees federally regulated financial institutions and issues guidelines such as B-20, which governs residential mortgage underwriting. The Canada Mortgage and Housing Corporation (CMHC), as a public mortgage insurer, sets mortgage insurance criteria. The fédéral Department of Finance can also intervene through legislation or regulation. In Quebec, the Autorité des marchés financiers (AMF) regulates the distribution of mortgage products under the Act respecting the distribution of financial products and services (ADFPS).

Guideline B-20: The Stress Test

Since January 2018, OSFI Guideline B-20 requires all uninsured mortgage borrowers to qualify at the higher of the contractual rate plus 2 percentage points and the qualifying rate floor set by the Bank of Canada. This stress test aims to ensure borrowers can withstand an increase in interest rates. For insured mortgages (down payment below 20%), a similar stress test had been in effect since 2016. The impact is significant: a borrower who would qualify for $500,000 without the stress test could be limited to approximately $400,000 with it, depending on prevailing rates.

Mortgage Insurance Changes (CMHC)

CMHC, Genworth (now Sagen), and Canada Guaranty are the three mortgage insurers in Canada. Insurance is mandatory for any down payment below 20% of the purchase price. Insurance rules can be modified by the fédéral government or by the insurers themselves. Possible changes include minimum credit score requirements, gross debt service (GDS) and total debt service (TDS) ratios, the maximum allowable amortization period, and eligible property types. In 2020, CMHC tightened its criteria (minimum credit score of 680, GDS of 35%, TDS of 42%) while Sagen and Canada Guaranty maintained more flexible standards, creating a split in the market.

• GDS ratio (gross debt service): percentage of gross income allocated to housing costs (mortgage, taxes, heating, condo fees if applicable)
• TDS ratio (total debt service): percentage of gross income allocated to all debts, including housing, car loans, credit cards, and other obligations
• Maximum amortization: the maximum repayment period (generally 25 years for insured mortgages, 30 years for uninsured)
• Minimum credit score: the minimum credit rating required for approval (varies by insurer and lender)

Anticipate and Prepare: Proactive Strategies

1. Stay informed about regulatory consultations: OSFI publishes its proposed changes for public consultation on its website. Subscribe to OSFI and CMHC newsletters, or ask your broker to keep you informed of changes that could affect you.
2. Assess your situation before an announced change: If a tightening is announced (for example, an increase in the qualifying rate floor), have your borrowing capacity evaluated under current rules. If a refinance or purchase is in your plans, consider submitting your application before the effective date.
3. Maintain an optimal credit profile: A strong credit file gives you more room when criteria are tightened. Keep your debt ratios low, make your payments on time, and avoid opening new credit lines unnecessarily before a mortgage application.
4. Consider non-fédéral lenders if needed: Guideline B-20 applies to federally regulated financial institutions. Desjardins caisses populaires, regulated by the AMF in Quebec, are not technically subject to B-20, although they often apply similar criteria. Certain alternative lenders may offer more flexibility in specific cases.

The Particular Case of Quebec

In Quebec, the mortgage legal framework has important distinctions. Mortgages are governed by the Civil Code of Québec (articles 2660 to 2802 CCQ), unlike the rest of Canada which operates under common law. Additionally, the Desjardins Movement, as a provincially regulated financial institution supervised by the AMF, is not directly subject to OSFI guidelines, although it generally adopts similar practices. Mortgage brokers in Quebec must hold an AMF licence under the ADFPS. This dual regulation (fédéral and provincial) sometimes creates gaps that can offer opportunities for well-advised borrowers.

History of Major Regulatory Changes in Canada

Canada's mortgage regulatory landscape has evolved considerably over the years. In 2008, the maximum amortization was reduced from 40 to 35 years. In 2012, it was further reduced to 25 years for insured mortgages. In 2016, the stress test was introduced for insured mortgages. In 2018, B-20 extended the stress test to uninsured mortgages. In 2024, the fédéral government announced easings including 30-year amortizations for first-time buyers of new construction. Each change has had significant répercussions on Canadians' borrowing capacity and demonstrates the importance of staying vigilant and well-advised.