The interest rate used in Canada’s mortgage stress tests has fallen for the first time since 2016, making it slightly easier to become a homeowner.

The mortgage qualifying rate dropped to 5.19 per cent from 5.34 percent, where is had been locked since May of 2018, according to new figures from the Bank of Canada. The rate is derived from the most frequently occurring five-year, fixed posted rates at Canada’s Big Six banks. Market rates are much lower.

The qualifying rate had increased several times during 2017 and 2018 as the Bank of Canada raised its key interest rate, and as bond yields headed higher. (These are the rates which influence the direction of five-year fixed rate mortgages.)

The stress tests are used to ensure homeowners and prospective buyers could continue to afford their mortgage payments at higher interest rates, and apply only to federally regulated lenders. The Department of Finance first imposed a stress test on insured buyers, or those who typically make a down payment of less than 20 per cent of the home’s purchase price, starting in the fall of 2016. Canada’s banking regulator followed suit with a similar test on uninsured buyers, which went into effect in 2018. The stress test level is set at either two percentage points above a borrower’s mortgage rate or the Bank of Canada’s five year posted rate – whichever is higher.

The impact of this slight lowering of rate allows borrowers to qualify for a slightly bigger mortgage than before. Although this change will not make paying of a mortgage any easier, in theory, a borrower can purchase a slightly more expensive home then when the stress test first began.   

Do you have questions about this change, the stress test or mortgages in general? Contact the experienced Winnipeg Mortgage Brokers at One Link Mortgage today (204-954-7620).

Source: Matt Lundy (The Globe and Mail)