For the first time in almost 3 years, the BoC has cut the qualifying rate
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The rate used to determine borrowers’ eligibility to qualify for a mortgage has been cut by the Bank of Canada.
The 5-year conventional mortgage rate - an indicative measure based on average price quotes from financial institution - was cut to 5.19% from 5.34%, the first time it has been reduced since August 2016. The last time it changed was in May 2018, when it increased.
The change makes qualifying for a mortgage more affordable for borrowers.
Ratespy.ca calculates that it increases the amount that qualifying borrowers can afford by 1.3% with a 5% down payment or by 1.4% with 20% down.
That means a borrower earning $50K a year would have around $2,800 extra to spend on a home with 5% down (assuming no other debts and a 25-year amortization) or an extra $4,000 with 20% down (assuming no other debts and a 30-year amortization). With a $100K income, those amounts would be roughly double.
Although ratespy.ca’s Rob McLister says the rate change is unlikely to turn the housing market around, he notes the psychological boost that it may give to potential homebuyers.
“This, on its own, obviously is not going to turn the housing market around. But if we get maybe another half-point cut in the stress test rate, it could be material for housing, McLister told BNN Bloomberg.
