OSFI Guideline B-20: Regulatory Framework
The Office of the Superintendent of Financial Institutions (OSFI) is the fédéral agency that regulates and supervises chartered banks, insurance companies, and trust companies in Canada. Its Guideline B-20, titled 'Residential Mortgage Underwriting Practices and Procedures,' establishes minimum standards for fédéral financial institutions when granting uninsured mortgages (down payment of 20% or more). Although Desjardins caisses in Quebec are regulated by the AMF rather than OSFI, they voluntarily apply B-20 principles and must respect the stress test for loans insured by the three mortgage insurers (CMHC, Sagen, Canada Guaranty).
The Stress Test
The stress test requires borrowers to demonstrate they can afford mortgage payments at a rate higher than their actual contract rate. Since June 2021, the qualifying rate is the higher of the contract rate plus 2% or the OSFI floor of 5.25%. For example, if a borrower obtains a contract rate of 5.00%, they must qualify at 7.00% (5.00% + 2.00%), since 7.00% exceeds 5.25%. If the contract rate is 3.00%, qualification is at 5.25% (the floor), since 5.00% (3.00% + 2.00%) is below 5.25%. This mechanism protects borrowers and the financial system against default risk during rate increases.
Maximum Debt Service Ratios
B-20 sets two maximum debt service ratios calculated at the qualifying rate (with stress test). GDS (Gross Debt Service) includes mortgage payment, property taxes, heating costs, and 50% of condo fees where applicable, divided by gross income. Maximum is 39%. TDS (Total Debt Service) adds all other financial obligations to GDS: auto loans, credit cards (3% of balance), student loans, lines of credit, and support payments. Maximum is 44%. Some lenders may have stricter thresholds, particularly for self-employed borrowers or those with limited credit history.
- GDS: [mortgage payment + property taxes + heating + 50% condo fees] ÷ gross income ≤ 39%
- TDS: [GDS + all other monthly debts] ÷ gross income ≤ 44%
- Calculation uses the qualifying rate (with stress test), not the contract rate
- Credit card debt calculated at 3% of balance, even if minimum payment is lower
- Lines of credit calculated at contractual rate with theoretical amortization
Exceptions and Special Cases
B-20 provides important exceptions. Renewals with the same lender are not subject to the stress test. Since 2024 changes, lender switches at renewal are also exempt, a measure from the Canadian Mortgage Charter. Reverse mortgages and certain renovation loans may be exempt based on individual lender policies. Importantly, B-20 applies to uninsured loans from fédéral institutions, but the stress test also applies to insured loans under mortgage insurer rules, covering the entire Canadian mortgage market.
Understanding the historical evolution of B-20 is crucial for contextualizing current rules. The original 2012 version imposed stress tests only for CMHC-insured mortgages. In 2016, OSFI extended the requirement to all high-ratio insured loans across all insurers. The major turning point came in 2018 when the stress test was extended to uninsured (conventional) mortgages, affecting even borrowers with 20% or more down payment. In 2023-2024, OSFI also adjusted expectations regarding home equity line of credit (HELOC) risk management, tightening eligibility and renewal criteria. These successive changes reflect the regulator's commitment to strengthening the financial system's resilience against Canadian real estate market fluctuations.
Practical Impact for Quebec Mortgage Brokers
For mortgage brokers, B-20 must be integrated from the first client meeting. Calculate borrowing capacity at the qualifying rate (not the contract rate) to provide a realistic purchase budget estimate. Identify strategies to maximize qualification within the test: reduce consumer debts before applying, add a co-borrower, choose 30-year amortization for conventional loans, and use rental income where applicable. The broker who masters B-20 subtleties and presents them clearly to clients positions themselves as a competent and indispensable professional.