A first-time homebuyer, Sarah, is looking to purchase a condo in Toronto for $750,000. Her gross annual income is $80,000, and she has no outstanding debts. The 5-year fixed mortgage rate offered by her bank is 5.29%. What is the minimum qualifying rate Sarah's lender must use for the stress test calculation, according to OSFI Guideline B-20?

Question: A first-time homebuyer, Sarah, is looking to purchase a condo in Toronto for $750,000. Her gross annual income is $80,000, and she has no outstanding debts. The 5-year fixed mortgage rate offered by her bank is 5.29%. What is the minimum qualifying rate Sarah's lender must use for the stress test calculation, according to OSFI Guideline B-20?

Answer options:

• 5.29%
• 7.29% ✅ 6.79%
• 5.00%

Correct answer: 6.79%

Explanation: According to OSFI Guideline B-20, the minimum qualifying rate for uninsured mortgages is the greater of the contractual mortgage rate plus 2% or 5.25%. In this case, 5.29% + 2% = 7.29%, and 5.25% is lower, so 7.29% is used. For CMHC insured mortgage the rule is the greater of the contractual mortgage rate or 5.25%. But Sarah's loan is uninsured, because downpayment would be 20% on $750k - 5% on 500k = $25k and 10% on $250k = $25k. $50k / $750k implies 6.67% downpayment. So Sarah needs to put $150k downpayment to have an uninsured mortgage.