Following the lead of Canada’s major banks, the Bank of Canada (The Bank) recently lowered its five-year conventional mortgage rate from 4.94 to 4.79 percent.
Prior to that, National Bank of Canada cut its posted five-year fixed rate by 15 basis points, following similar cuts by BMO, CIBC, RBC and TD.
The Bank’s rate is the rate home buyers must qualify at for a mortgage, regardless of what rate they may actually be paying through their lenders.
It was the second time The Bank reduced the qualifying rate in the last three months, the most recent in May when the rate changed from 5.04 percent to 4.94 percent.
“Over the last few years, rule changes have made it harder for Canadians to qualify, so the recent reductions in the benchmark qualifying rate is welcome news for first-time home buyers hoping to enter the housing market,” says James Laird, co-founder of Ratehub.ca and president of CanWise Financial. “The change to the benchmark qualifying rate will increase home buyers’ affordability by 1.5 percent.”
Using Ratehub.ca’s mortgage affordability calculator, Laird says a family with an annual income of $100,000 with a 10 percent down payment and five-year fixed mortgage rate of 2.79 percent amortized over 25 years would have qualified for a home valued at $523,410 under the original 4.94 percent qualifying rate.
“Under the new stress test, if they had a qualifying rate of 4.79%, they can now afford $531,230, which is a difference of $7,820,” he says.
The new qualifying rate is just 15 basis points above the all-time low of 4.64 percent, last seen in July 2017.
“It will make qualifying easier, or permit some people to borrow fractionally more,” Paul Taylor, president and CEO of Mortgage Professionals Canada, told the Globe and Mail.
Five-year fixed rates are currently at historic lows, so now is a good time to qualify and secure a mortgage rate, says Mark Herman of Calgary-based Mortgage Alliance.
“In addition to the lower rates, the lower stress test added about one percent to a buyer’s maximum mortgage amount, depending on the downpayment,” says Herman. “The new rules that have come in and the tighter underwriting guidelines the banks are using have taken away much more than that for the average buyer.”
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