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Canada Mortgage Qualifying Rate Lowered to 5.19%

Bloomberg Canada – July 19, 2019

The Bank of Canada has lowered the rate used by mortgage stress tests, used to qualify homeowners for mortgage borrowing limits, for the first time in three years.

The central bank’s five-year benchmark qualifying rate is now 5.19 per cent, down from 5.34 per cent.

It’s the first decrease in the five-year fixed mortgage rate since September 2016, when it dropped from 4.74 per cent to 4.64 per cent, and increased steadily since.

Rob McLister, founder of mortgage comparison website RateSpy.com, says the dip will increase the buying power for mortgage borrowers by allowing them to afford up to 1.4 per cent more home.

For example, someone putting a 20-per-cent down payment on a home who makes $50,000 per year can now afford $4,000 more home, according to calculations by Ratespy.com.

“It will have an incremental boost for housing,” McLister told BNN Bloomberg’s Greg Bonnell Friday.

“This, on its own, obviously is not going to turn the housing market around. But if we get maybe another half-point cut in the stress test rate, it could be material for housing.”

The qualifying rate is used in stress tests for both insured and uninsured mortgages, and a lower rate means it is easier for borrowers to qualify.

These stress tests require potential home buyers to show they would still be able to make mortgage payments if faced with higher interest rates or less income.

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