Effective today, the Bank of Canada has raised the "qualifying interest rate" from 5.24% to 5.44%
What does this mean for Canadians who are looking to buy real estate or finance a home?
In an attempt to steer people into longer term mortgage commitments, the Bank of Canada has set an arbitrary interest rate that you must qualify to be able to afford. So, even if you are getting a 3 year mortgage at 2.99%, they want you to ensure that you could still afford that payment should the interest rate be as high as 5.44% just in case something were to happen and the rate was to go up by the end of your 3 year term.
Anyone taking a mortgage term of less than 5 years, will have to qualify as if their rate was 5.44%, even though their actual interest rate will in virtually every case be much much lower than that.
For those who take a 5 year term or longer, you only need to qualify at your actual interest rate. So if you are taking a 5 year term at 3.39% you would only need to qualify to make the payment at this amount, an NOT the 5.44%.
The result is that many mortgage applicants are steered into the 5 year product, which should provide them with 5 years of financial reliability and security, regardless of the interest rate market.
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