Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Bank of Canada finally jacked the qualifying rate long after TD and RBC raised their posted fixed rates last month. Bond yield did not show much movement but the rates went up signalling that the lenders are leaning for the fixed rate mortgages.

Qualifying rate influences your home buying process. Although we know that the qualifying rate applies only to variable rate borrowers but some lenders uses it for fixed rate lending too. If a lender would need you to satisfy qualifying rate requirement – depends on the lender and the term of the fixed rate. Normally a five years fixed term does not need to satisfy the qualifying rate requirement but many short-term fixed rates do ask for qualifying rate check.

That makes sense as shorter term brings more exposure to risk.

In order to meet GDS / TDS ratio (32% and 40%) a slight change in qualifying rate makes a significant difference in the purchase price. If a borrower earns $70K annually and assuming some other numbers, the following table explains the difference it makes.

Details 5.44% Qualifying 5.24% Qualifying
Income $70,000 pa $70,000 pa
Down payment $50,000 $50,000
Amortization Period 30 years 30 years
Property Tax $5,000 pa $5,000 pa
Heating $1,200 pa $1,200 pa
Purchase price of property $305,842 $311,507
Mortgage amount $255,842 $261,507
Note: this is an approximate calcualtion only for the purpose of illustration. Talk to a professional to find out more.