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

Last modified: April 25, 2014