Guideline B-20 explained

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Narrator: Our expectations for residential mortgage underwriting standards are set out in Guideline B-20.

Essentially this is the guideline that informs lenders about the standards that should apply when approving mortgages.

Guideline B-20 allows financial institutions the flexibility to apply OSFI’s principles based on their size, complexity and the nature of their business.

Ultimately, the terms of any mortgage contract will be a decision that is made between the lender and the borrower.

One of the better known elements of B-20 is the Minimum Qualifying Rate, or MQR. This is sometimes referred to as the “stress test”.

To know whether a borrower could handle a higher payment in the future - in case of rising interest rates or changes in income - OSFI expects lenders to use a higher interest rate to assess a borrower’s ability to repay a mortgage than the rate the borrower will actually pay.