Backgrounder: Minimum Qualifying Rate (MQR)

Overview

Effective today, the Office of the Superintendent of Financial Institutions (OSFI) no longer requires a set Minimum Qualifying Rate (MQR) for uninsured straight switches at renewal.

A straight switch is when a borrower switches their uninsured mortgage to a new federally regulated lender with no increase to:

• the amortization period, nor
• the loan amount.

In all cases, OSFI expects lenders to apply the principles of sound residential mortgage underwriting set out in Guideline B-20. Lenders should continue to consider current and future conditions as they determine qualifying rates and make appropriate judgments, aligned with their risk appetite and residential mortgage underwriting policy.

Why it’s important

One of the biggest risks for financial institutions is real estate secured lending. If borrowers are unable to repay their loans, it could have a negative impact on Canada’s financial system. 

Removing the requirement to apply a set MQR at renewal provides financial institutions with the ability to adapt their approach based on their risk appetite and residential mortgage underwriting policy, offering more flexibility when it comes to straight switches at renewal.

This timing coincides with the introduction of new loan-to-income (LTI) limits on uninsured mortgage portfolios. While both measures are intended to reduce mortgage lending risks, the LTI limits are expected to contain overall residential mortgage credit risk to institutions. OSFI will consider the efficacy of, and continued need for the MQR for uninsured mortgages following implementation of the new LTI limit framework.

Effective date

OSFI’s updated expectations regarding uninsured straight switches are effective today, November 21, 2024.

By way of background, the LTI limits took effect at the start of each lender’s fiscal year 2025. The largest mortgage lenders implemented this change on November 1, 2024. All other lenders followed by January 2025.