A mortgage agent is reviewing a loan application for a borrower with a variable-rate mortgage needing mortgage default insurance. Which of the following is most accurate regarding how mortgage default insurers (e.g., CMHC, Sagen, Canada Guaranty) generally assess the qualifying interest rate for such a mortgage?

Question: A mortgage agent is reviewing a loan application for a borrower with a variable-rate mortgage needing mortgage default insurance. Which of the following is most accurate regarding how mortgage default insurers (e.g., CMHC, Sagen, Canada Guaranty) generally assess the qualifying interest rate for such a mortgage?

Answer options:

• Insurers qualify variable-rate mortgages using the contract rate plus 2% or 5.25%, whichever is greater, consistent with current regulatory guidelines for uninsured mortgages.
• The qualifying rate for an insured variable-rate mortgage is typically the Bank of Canada's overnight rate plus a standard premium determined by the insurer.
• For insured variable-rate mortgages, the borrower is generally qualified at the greater of the Bank of Canada's posted five-year conventional mortgage rate or the contract rate plus 2%. ✅ Mortgage insurers use the stress test rate of 5.25% or the contract rate plus 2%, whichever is higher, for both fixed and variable insured mortgages, reflecting OSFI's B-20 guideline.

Correct answer: Mortgage insurers use the stress test rate of 5.25% or the contract rate plus 2%, whichever is higher, for both fixed and variable insured mortgages, reflecting OSFI's B-20 guideline.

Explanation: For insured mortgages, including variable-rate ones, the qualifying interest rate (stress test) is the greater of the Bank of Canada's posted five-year conventional mortgage rate, or the contractual mortgage rate plus two percentage points, as stipulated by OSFI Guideline B-20 and applied by mortgage default insurers.