Canada’s mortgage law change enough to alleviate market stagnation?

• Homeowners can now switch lenders to secure more competitive mortgage rates due to a recent policy change
• Borrowers gain flexibility and lenders face pressure to offer better terms, marking a positive shift amid the home affordability crisis

What's happening: The recent mortgage policy change allowing Canadian homeowners to switch lenders is opening doors for borrowers to secure more competitive rates. But experts question if it will be enough to alleviate difficulties for first-time buyers to enter the housing market or to help Canada's home affordability crisis as a whole.

Competition at renewal: Jennifer Harder, a mortgage broker with MortgagePal, explains how the decision by OSFI will empower borrowers and encourage competition among lenders.

"Borrowers with low-rate mortgages, often around 2%, who couldn’t previously switch lenders due to stress test regulations, can now explore better options at renewal. This forces existing lenders to work harder to retain clients with competitive rate offers."

Transaction cost allowances: The policy also permits an increase of unpaid principal balances by $3,000 to cover transaction costs, such as appraisal and discharge fees. While helpful, Harder notes this isn’t a new practice for many lenders. "It’s enough for basic costs but doesn’t fully cover penalties or legal fees. Increasing this amount to cover all penalties would benefit borrowers more significantly," she suggests.

Impact on borrowers: As borrowers gain more flexibility and lenders face greater pressure to offer competitive terms, it marks a positive shift for homebuyers in need of relief in the midst of the home affordability crisis. Enthusiastic about the change, Harder says "This is huge in itself, and great for the borrower, as they can now shop around for a different lender at renewal time."