The mortgage qualification bar has been lowered, allowing Canadians to buy more expensive houses.
Five-year posted mortgage rates at Canada's biggest banks have been lowered in recent weeks, compelling the Bank of Canada to lower the average rate that the central bank uses to base its mortgage qualification calculations on to 4.79%.
The Bank of Canada’s benchmark mortgage rate is the level on which the mortgage "stress test" is based on. The stress test is used to ensure that borrowers can pay back their mortgage loans if interest rates increase.
Under the previous Bank of Canada benchmark lending rate, a family that earns $100,000 a year and has a 10% down payment would have been stress tested at 4.94% and qualify to buy a home valued at up to $523,410. At the new stress test level, that same family would qualify for a loan on a home costing up to $531,230, a difference of $7,820.
The benchmark mortgage rate has already been lowered twice in this pandemic, first in mid-March when it dropped from 5.19% to 5.04%, and then again in May when it dropped to 4.94%. This week's cut means Canadians can now be approved for a slightly bigger mortgage than they could last week, even if their income remains the same.
Ottawa had planned to change the way the mortgage stress test was calculated in April. But those plans were put on hold when the COVID-19 pandemic hit.
