For the first time in 3 years, the Bank of Canada has decreased the minimum mortgage qualifying rate from 5.34% to 5.19%. This decrease affects the mortgage stress test that lenders use to assess a borrower’s ability to pay a mortgage. The test uses an inflated mortgage rate to determine a borrower’s ability to meet payment obligations, in case of changes in income or economic conditions. Although a borrower may be charged a much lower mortgage rate, the borrower must still be able to prove that, theoretically, they can borrow at the higher qualifying rate, in the event that the rates increase in the future.
Consequently, more potential borrowers can qualify for a mortgage. As Steven Tulman, President of Clover Mortgage explains,
“A borrower with an income of $50,000 and a 20% down payment can afford a home worth $4,000 or 1.4% more, assuming a 30 year amortization period and no other outstanding debts. Similarly, a borrower with a $100,000 income and an equivalent down payment rate could afford 1.4% or $8,300 worth of more home.”
Although the overall effects are relatively slight, these changes may reduce the stress that first-time homebuyers, the most financially constricted group, face. The reduced rate may also counteract the weak lending growth in 2018, which was the slowest in 25 years. Importantly, the rate change may motivate buyers to borrow mortgages and purchase properties, adding more support for housing prices.
Please visit our Mortgage Pre Approval Checklist page to see what you would need to qualify and speak with an experienced and helpful Clover Mortgage broker today to start your application process. Call or text us today at 416-674-6222 or toll free at 1-800-673-2230, or email us at firstname.lastname@example.org for your free no obligation mortgage consultation.