Get money-saving tips in your inbox.

Stay on top of personal finance tips from our money experts!

News & Resources

Why a Lower Qualifying Rate Is Good News

July 29, 2019
4 mins
Happy couple in modern living room

If you're looking to qualify for a mortgage in Canada, you can now take advantage of a lower benchmark qualifying rate for mortgages. The Bank of Canada recently announced that the five-year benchmark has dropped to to 5.19%. hat's a 0.15% drop from its previous rate of 5.43%. The great news is that homebuyers may be able afford to borrow more for their future homes and that Canadians could qualify for a mortgage more easily.

The Significance of a Lower Home Mortgage Qualifying Rate

Since banks use a benchmark rate to qualify you for a home mortgage, it's important to pay attention to the figure. It’s also worth noting that the last time the Bank of Canada dropped this benchmark rate was in 2016. The rate had been on the rise since then.

Is the Qualifying Rate the Same as the Stress Test?

The short answer is, “kind of”.

Before 2018, the government required banks to apply an affordability test or the "stress test" known as Guideline B-20 to Canadians who had an insured mortgage or who did not apply a 20% down payment to their home purchase. This test helped banks better determine the likelihood of mortgage-seeking homebuyers paying them back. However, Canada made the stress test applicable to all homebuyers beginning in 2018.

Guideline B-20 made it more challenging for Canadians to borrow higher amounts. Officials believed the implementation of the stress test achieved its goal of lowering home prices, according to a report from TD Bank. The rules require you to demonstrate your ability to pay a mortgage at an interest rate at least two percentage points higher than the Bank of Canada's posted rate.

Because the qualifying rate has dropped, the stress test just got easier.

Expect More Buying Power

With a lower qualification rate, you can typically expect to get access to borrow more money. But it's worth understanding how Bank of Canada calculates the rate. The Bank of Canada uses the country's largest banks' five-year fixed rates as a baseline for the qualifying rate.

Commercial banks have been offering customers lower fixed rates over the years thanks to falling bond yields. The impact of these lower rates means you can expect to borrow $4,000 more on a $50,000 annual salary with a 20% down payment.

Evaluate Your Situation and Borrow What You Need

Even with access to borrowing more money, it's important to only take out a loan for what you need. This strategy helps you keep your debt down. Remember that your bank is only considering how much you make, your ability to pay and the money you owe when it's deciding on how much to lend you, not your personal commitments, such as a family vacation or your child's college expenses.

So, it's important to perform your own "stress test" consider your financial situation and think about your needs. Use online tools like mortgage calculators to help you figure out what you can and can't afford.

By taking these steps, you can determine how much you can afford and find the ideal best mortgage rate for you and your family.

RATESDOTCA Team

The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

Latest life insurance articles

10 Life insurance myths debunked
Life insurance is for someone older or has kids, right? Wrong. Let’s debunk life insurance myths and learn why everyone needs some form of coverage.
6 mins read
Do you need life insurance? A primer for Canadians
Life insurance isn’t a one-size-fits all solution. But if you have dependents, it can be an important financial safety net for those you love.
7 mins read
Why life insurance should be part of estate planning for new parents
Life insurance is one of the best ways new parents can protect their family and help loved ones in the event of your unexpected death.
5 mins read

Subscribe to our newsletter

Stay on top of our latest offers, relevant news and tips!

Thanks for joining!

You'll be hearing from us shortly - stay tuned.