The purpose of using a benchmark rate when qualifying for a mortgage is to ensure that one can still manage their mortgage payments if interest rates were to increase.
This Qualifying Benchmark Rate for insured mortgages has decreased from 5.19% to 4.89% effective April 6, 2020 and will fluctuate weekly based on the median 5-year fixed insured mortgage rate.
Benchmark rates, in the long run, will help to create stability in the mortgage market in Canada while making sure that there is not a bubble that is created in the meantime. Although mortgage rates in Canada are still very low, it is a mistake to borrow more money than you can comfortably repay, and due to that reasoning the benchmark rate has been introduced to keep the Canadian housing market in check.
Who decides what this rate should be?
Previously the Bank of Canada surveyed the six major banks’ posted 5-year fixed rates and used a mode average of those rates to set the official benchmark and is published by the Bank of Canada. The new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. These changes will come into effect on April 6, 2020.The new benchmark rate will be published on a Wednesday and come into effect the following Monday.
Who is effected by the stress test when qualifying for a mortgage?
Everyone applying for a mortgage has to qualify at the Benchmark Rate, regardless of their down payment.
The qualifying rate change means someone making a 5% down payment could afford: