Under OSFI's Guideline B-20, a borrower in BC with a $1,200,000 uninsured mortgage at a contracted rate of 5.5% must qualify at what rate?
Correct Answer
C) 7.5%, the contracted rate plus 2%
Under Guideline B-20, the qualifying rate is the higher of the benchmark rate (5.25%) or the contractual rate plus 2%. Since 5.5% + 2% = 7.5% is higher than the 5.25% benchmark, the borrower must qualify at 7.5%. This applies to uninsured mortgages at federally regulated lenders, significantly affecting borrowing capacity in BC's expensive markets.
Why This Is the Correct Answer
Option C is correct because under Guideline B-20, the qualifying rate is the higher of the benchmark rate (5.25%) or the contractual rate plus 2%. For a borrower with a contracted rate of 5.5%, the stress test rate is 5.5% + 2% = 7.5%. Since 7.5% exceeds the 5.25% benchmark, the borrower must qualify at 7.5%.
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