On May 9, 2018, the Bank of Canada raised the qualifying mortgage rate used for mortgage stress testing from 5.14% to 5.34%. This is not the rate you will pay, rather this is the rate we are required to use to qualify you for a mortgage. This rate is determined by the big 5 banks average Posted rate and they have increased these rates over the last few weeks resulting in the Bank of Canada’s bench mark rate increasing.
This means that stress tests to verify you can afford a new mortgage or refinanced loan uses a higher interest rate. This will cause some potential home buyers to reduce the amount they can spend unless they have a little more down payment to balance the previous pre-approval. It will impact the total borrowing ability by about 1%, or a few thousand dollars. It is not a substantial jump that will significantly lower your spending ability but something that we wanted to share with our clients so you are aware of the new stress test rate.
We’ve seen a rise in government bond yields. Canadian benchmark bonds have gone from 1.01% to 2.16% in the past year. And both fixed mortgage rates and qualifying mortgage rates have risen with it. The qualifying mortgage rate has been increased several times since mid-2017. It was 4.64% in May of 2017. This has happened despite the Bank of Canada keeping interest rates steady for the time being, though the Bank has warned they’ll probably have to raise interest rates later this year.
TD Bank raised its benchmark rate from 5.14% to 5.59%, however the others increased only to 3.34%. These are Posted rates they are not the actual rate you get when we qualify you for a mortgage. This change will have its greatest impact on first-time home buyers or anyone refinancing their current home. It will lower the amount they can borrow by a few thousand dollars. This is all happening in efforts to cool Canada’s housing market and actually bring home prices down in Toronto and Vancouver where they were climbing at a really high rate very quickly. Saving up for a larger down payment is also an option as you will not need too much more; $5000 will balance out the new qualifying rate in most cases. If you have any questions pleases reach out anytime to discuss.