Mortgage insurers clarify qualification rules for VRM applications amid rising rates

The Bank of Canada's recent rate hike has led to confusion about how the stress test should be applied to variable rate mortgage (VRM) applications already in lender pipelines. Canada's three mortgage insurers—Sagen, CMHC and Canada Guaranty—issued a joint statement to provide clarification on the matter. In summary, variable-rate borrowers whose applications received both lender and insurer approval before July 14 can rest assured that their loan will be qualified at pre-BoC-hike rates. However, in cases where a lender submitted a VRM application prior to an increase in the prime rate but hadn't yet received insurer approval, the lender would be required to resubmit the loan to be qualified under the increased contract rate. Borrowers must still be mindful about making changes to approved loans, especially if they fall close to anticipated increases in the prime rate and if their debt ratios are near the max.