Under the federal B-20 guideline, what is the minimum qualifying rate that federally regulated lenders must use when stress testing mortgage applicants?
Correct Answer
A) The greater of the contract rate plus 2% or 5.25%
The B-20 stress test requires federally regulated lenders to qualify borrowers at the greater of their contract rate plus 2% or the minimum qualifying rate of 5.25%. This ensures borrowers can handle potential rate increases and economic stress.
Why This Is the Correct Answer
Option A correctly states the B-20 stress test requirement under OSFI guidelines. Federally regulated lenders must qualify mortgage applicants using the greater of two rates: their actual contract rate plus 2%, or the minimum qualifying rate of 5.25%. This dual-threshold approach ensures borrowers can handle payment increases regardless of current market conditions. The 'greater of' provision means when contract rates are low, the 5.25% floor applies; when contract rates exceed 3.25%, the contract-plus-2% applies.
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A borrower applies to a federally regulated bank for an uninsured mortgage with a contract rate of 3.00%. Under OSFI's minimum qualifying rate, at what rate must the borrower qualify?
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