Bank of Canada raises mortgage qualifying rate


It just got harder for buyers to qualify for mortgages in Canada after the central bank raised the conventional five-year mortgage rate from 5.14 per cent to 5.34 per cent used in stress tests that determine borrowers' eligibility.

The jump in the mortgage qualifying rate comes after Canada’s largest lenders raised their benchmark posted five-year fixed mortgage rates in recent weeks in line with the increase of the cost of borrowing.

The central bank qualifying rate is separate from the actual mortgage rates offered by banks to borrowers, but is used to assess homebuyers' eligibility who are seeking loans.

Homebuyers with less than a 20 per cent down payment seeking an insured mortgage must qualify at the central bank’s benchmark five-year mortgage rate.

Homebuyers with 20 per cent down payment seeking an uninsured mortgage must  prove they can handle payments at a qualifying rate of the greater of the central bank's five-year benchmark rate or two percentage points higher than the contractual mortgage rate.

Borrowers now qualify for less than what they could afford earlier this year, and therefore they can make some adjustments in order to make a purchase. Like purchasing a smaller home and taking on less mortgage, or purchasing where prices are lower.

This change will affect the market with home purchases, renewals and refinances.


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