{"id":13894,"date":"2017-09-14T01:00:06","date_gmt":"2017-09-14T05:00:06","guid":{"rendered":"http:\/\/www.zoocasa.com\/blog\/?p=13894"},"modified":"2017-09-07T16:34:17","modified_gmt":"2017-09-07T20:34:17","slug":"how-will-a-higher-mortgage-qualifying-rate-affect-you","status":"publish","type":"post","link":"https:\/\/www.zoocasa.com\/blog\/how-will-a-higher-mortgage-qualifying-rate-affect-you\/","title":{"rendered":"How Will a Higher Mortgage Qualifying Rate Affect You?"},"content":{"rendered":"

Canada\u2019s economy appears to be back on track after years of stop-start recoveries and anemic growth. That\u2019s welcome news for sure, but for one segment of the population, an increased GDP may indirectly leave them even more out of pocket.<\/p>\n

On July 12, prospective home buyers woke up to the news that the Bank of Canada had increased its key interest rate<\/a> for the first time in seven years. That in turn has led to Canada\u2019s big banks increasing their Prime borrowing rates \u2013 and, as a result, the mortgage qualifying rate.<\/p>\n

What is the Mortgage Qualifying Rate?<\/h2>\n

The mortgage qualifying rate, (which has increased from 4.64 to 4.84 per cent) requires all borrowers paying less than 20 per cent down to qualify at that level, even if they can get a cheaper contract mortgage rate. It is a benchmark set by an average of the fixed posted rates from the big five banks.<\/p>\n

For example, consider a scenario where a couple is looking to calculate their maximum affordability before starting their home search. Let\u2019s assume they both have no debt, a pre-tax total income of $120,000, and have saved $35,000 for a down payment, and estimate property taxes and heating costs will be $475 per month.<\/p>\n

If this couple didn\u2019t have to use the qualifying rate, they\u2019d be able to purchase a property priced at $600,000 with a fixed five-year rate of 2.64%. Using the qualifying rate of 4.84%, however, their maximum affordability declines to $578,269 – that\u2019s a difference of $21,731. (These calculations were made using RateHub\u2019s\u00a0mortgage affordability calculator<\/a>.)<\/p>\n

Should borrowing costs rise, this could prove to be a double-whammy for already stretched buyers \u2013 and the likelihood is high there are more rate hikes to come.<\/p>\n

Related Read: Why You Need a Pre-Approval When Interest Rates Rise<\/a><\/strong><\/p>\n

Will Rates Rise Again?<\/h2>\n

Mike Bricknell, mortgage broker at Canwise Financial, has worked with a variety of lenders during his 10 years in the industry, from large financial institutions to smaller banks and credit unions. He says the one thing that never changed was rate pricing barely rose above the zero mark. This summer saw the trend shift, though – and although the BoC\u2019s hike from 0.5 to 0.75 per cent doesn\u2019t look that significant on the surface, it will certainly impact already stretched borrowers.<\/p>\n

\u201cWe were forewarned that rates would increase, and now they are here,\u201d Bricknell says, adding, \u201cSomething I felt slid under the radar at the time was the Bank of Canada raising the qualifying rate. I don\u2019t think a lot of people noticed that for at least a week after the rate change.\u201d<\/p>\n

It is widely predicted that the Bank of Canada will indeed raise its key rate later this year, which is why gaining pre-approval for a lender now at a lower rate could save people a lot of money down the line, as Bricknell outlines.<\/p>\n

\u201cWe are trying to push people to buy in now,\u201d he says. \u201cNobody knows for sure what the upcoming regulations will be. Will it be even harsher to become qualified to buy? My parents were paying interest rates of 20 per cent in the \u201880\u2019s. Who knows what the future holds, so I think now is a good time to buy.\u201d<\/p>\n

Double Digits Highly Unlikely<\/h2>\n

However, after a decade of ultra-low rates – a monetary policy still in place in much of the world – the chances of a return to double-digit rates looks highly unlikely. Many economists pin the blame for rampant house-price inflation on central banks, saying they\u2019ve made borrowing too appealing. In Bricknell\u2019s opinion there is another root cause, and one that remains no matter what the Bank of Canada decides on rates.<\/p>\n

\u201cWe have seen the amount of sales decrease by about 40 per cent, but prices haven\u2019t really gone down,\u201d he says. \u201cThere are a large amount of people all over the world that want to come to Canada, so I think house prices might dwindle a little bit with higher rates, but only in certain markets. It is the price of land that is driving up home prices.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Canada\u2019s economy appears to be back on track after years of stop-start recoveries and anemic growth. That\u2019s welcome news for sure, but for one segment of the population, an increased GDP may indirectly leave them even more out of pocket. On July 12, prospective home buyers woke up to the news that the Bank of […]<\/p>\n","protected":false},"author":47,"featured_media":13896,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jnews-multi-image_gallery":[],"jnews_single_post":[],"jnews_primary_category":[],"footnotes":""},"categories":[468],"tags":[],"class_list":["post-13894","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mortgages-2"],"yoast_head":"\nHow Will a Higher Mortgage Qualifying Rate Affect You? | Zoocasa<\/title>\n<meta name=\"description\" content=\"Borrowers must now face a higher mortgage qualifying rate of 4.84 per cent, after the Bank of Canada hiked its overnight lending rate.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.zoocasa.com\/blog\/how-will-a-higher-mortgage-qualifying-rate-affect-you\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Will a Higher Mortgage Qualifying Rate Affect You? 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