For the first time in almost three years, the Bank of Canada has cut its minimum mortgage qualifying rate, dropping it to 5.19 per cent from 5.34 per cent.
The central bank’s new rate has a slight effect on the mortgage stress test for those with uninsured mortgages.
“At a minimum, the qualifying rate for all uninsured mortgages should be the greater of the contractual mortgage rate plus two per cent or the five-year benchmark rate published by the Bank of Canada,” states OSFI’s Residential Mortgage Underwriting Practices and Procedures guideline.
Whichever rate is higher is the one that borrowers are tested at. As a result, at least for the time being, it will be slightly easier for those with uninsured mortgages to qualify. This also applies to those who want to switch lenders.
According to calculations by RateSpy.com, assuming no other debts and a 30-year amortization period, someone earning $50,000 a year and making a 20 per cent down payment would be able to afford a home that is roughly $4,000 more expensive. Someone earning $100,000 a year and making the same down payment would be able to afford a home that is roughly $8,300 more expensive.
“This decrease alleviates some of the pressure on first-time homebuyers, who are the most financially strained Canadians entering the housing market,” said James Laird, co-founder of RateHub Inc. and president of CanLife Financial.
The Bank of Canada determines the conventional five-year mortgage rate using Office of the Superintendent of Financial Institutions (OSFI) data on the posted five-year rates for the six largest banks. OSFI on July 15 released the May data.
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