Date: January 16, 2023

The Office of the Superintendent of Financial Institutions (OFSI) has brought forth three new proposals.

Loan-to-income (LTI) and debt-to-income (DTI) restrictions – i.e., measures that restrict mortgage debt or total indebtedness as a multiple, or percentage, of borrower income.

LTI is when the loan can only be a certain multiple of what you earn – this is very much like the home buyer incentive plan rolled out a few years ago, which was one of the worst plans ever created, in my opinion. In many cases, this meant that you actually qualified for less than if we used regular current qualifying policies.

Right now, this is for uninsured mortgages, but it could trickle into insured mortgages. It also looks like they are more focused on LTI instead of DTI

Debt service coverage restrictions – i.e., measures that restrict ongoing debt service (principal, interest and other related expenses) obligations as a percentage of borrower income.
Currently, a mortgage must qualify at 39 Gross Debt Servicing (GDS) and 44 Total Debt Servicing (TDS)

39% of your income can be spent on housing

44% of your income can be spent on housing and total debt

Some lenders currently have debt servicing exceptions, and OFSI is looking at putting limitations on this and limiting the number of mortgage files a lender can make exceptions on

Interest rate affordability stress tests – i.e., a minimum interest rate that is applied in debt service coverage calculations to test a borrower’s ability to afford higher debt payments in the event of negative financial shocks.
This is different from the current stress test. This policy recommendation is more geared toward variable rate, adjustable or shorter-term mortgages.

Suggesting that there is a different stress test for these types of mortgages, in my opinion, actually hurts borrowers as they are likely forced to take on 5-year, 7-year, and 10-year terms that come with a higher penalty should they need to break those mortgages. This will mean more money for the banks as mortgage holders are likely to trigger higher penalties if they break these mortgages.

Who will this affect? Likely the least qualified borrowed.

The proposal is open for comment until April 14, 2023, which means any changes are likely to be passed and implemented will show up in the third quarter of the year

Here is the link to the OFSI report


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