Rumour has it that the biggest question coming out of the new mortgage rules announced by the Finance Minister last month, which was what is the exact “higher” mortgage rate that clients will now have to qualify for, should be announced soon.
It appears that the new qualifying rate, which goes into effect on April 19, 2010, that all customers with less than a 20% deposit and are trying to secure a variable rate mortgage or any fixed product under 5 years will need to qualify for the higher of:
- the chartered banks 5-year fixed posted rate (currently at 5.39%), or
- the contract rate
No official announcement has been made but it appears the qualifying rate will be posted on the Bank of Canada website each Monday at midnight EST.
Many lenders use qualifying rates already for mortgage shoppers looking to get variable or short term fixed rates anyways, but this move will standardize this process across the industry rather than leave it up to each lender themselves.
The odd thing about this qualifying rate is the contract rate. If you wanted a 5 year fixed mortgage, for example, you’d need to qualify based at the 5 year contract rate. The best current mortgage rate 5 year rate is 3.59%, versus the posted 5 year rate of 5.39%. However, if you wanted a 4 year fixed with a best current rate of 3.59%, you’d need to qualify at the 5.39% rate. The monthly payment difference based on a $250K mortgage with a 25 year amortization period is $249.93 or almost $3,000/year. So which would you choose?
We’ll update the post when we see an official announcement.