Just because someone can afford a variable-rate mortgage today doesn’t mean they can afford it if rates rise. That’s why lenders will often qualify you at (i.e. make sure you can afford) a higher interest rate.
CMHC-insured variables, for example, require that you can afford the payment at the higher of:
A) The lender’s 3-year posted fixed rate; or,
B) The rate at the time of closing.
Keep this in mind if you’re putting down less than 20% and considering a variable-rate mortgage. For example, today 5-year variable rate at TD Canada Trust is 5.25% (prime – .50%). However, you would have to qualify for this mortgage based on a rate of 7.40% (TD’s posted 3-year fixed rate).
Put another way, the payment on a $100,000 mortgage at 5.25%* is $595.92. But, you’ll need to be able to handle a payment of $725.28 to get this mortgage.
* Based on a 25-year amortization
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