Official Announcement on Qualifying Rate

We can now officially announce what many of you already know.

Direct from CMHC:

On March 5, 2010, CMHC communicated to Broker organizations and CMHC-approved Lenders how the “five-year fixed rate” requirement would be implemented by CMHC.

Effective April 19, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with a loan to value ratio (LTV) greater than 80 per cent as follows:

Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate, and the contract interest rate. For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.

Mortgages with Multiple Interest Rates (e.g. Multi-Component Mortgages): Each component must be qualified using the applicable criteria defined above.

The “Benchmark rate” is the typical 5-year fixed posted rate of the Big 5 banks.  That is 5.39% currently.

  1. This is huge for people who were stretching the limits. Depending on the rates being used to compare some people will only quality for 80% of what they for qualified before.

  2. I am feeling a bit dense this evening, but I can’t seem to find any official announcement about this on the CMHC link given. Could someone please post a link to the information if you’ve found it?
    Much appreciated!

  3. This seems to be contrary to what is being reported on the website which states:
    “The most wide-sweeping measure will affect how prospective homebuyers qualify for a mortgage. Under the new rules, mortgage eligibility will be determined using the 5-year fixed posted rate (or the contract rate, where it is higher), regardless of which term the applicant will actually receive. ”
    Here is the link to the article:
    So far all you’ve given us is a link to the main page of the CHMC website. How about your “Direct from CHMC” link or a scan of the Official Annoucement.

  4. CMHC has isued an Advice to Approved Lenders (#146) which they generally do not post to their website. It indicates as above, anything less than a 5 year term or a variable/adjustable rate qualifies at the benchmark rate (as indicated on the BOC website), 5 year terms qualify at the contract rate.

  5. In Advice Notice (#146) the wording is more specific as to the Qualifying Interest Rate:
    2.0 Effective April 19,2010 the qualifying interest rate used to assess borrower eligibility will change only for loans with a loan to value ratio (LTV) greater than 80% as follows:
    See the word ONLY… This doesn’t mean all lender’s are in agreement as to how they will address the qualifying interest rate.

  6. Why is 5.39% being used as the posted rate, when some banks have 5.25% as their posted rate?
    Do the new regulations specify which posted rate to use (lowest, highest, median) of the big six chartered banks?

  7. Hi Dan,
    The qualifying rate is posted by the Bank of Canada just after midnight each Sunday. As of the last update, that rate is 5.39%.
    Our understanding is that this would be the qualifying rate if the new rules were in effect today (despite posted rates falling since the last BoC update).

  8. Fellow Brokers,
    Am I going crazy here? I believe that the qualifying rate story is a non-issue as it is prudent, though yes it does funnel mortgages into the five year bucket. No surprise.
    The real story that is not being reported is the loss of the CMHC self-employed program. The rules state you must be bfs for a minimum of two years, but you don’t qualify if you are bfs over three years. I realize this requires an intimate knowledge of the mortgage market, which quite frankly most reporters don’t have, but this will have a huge impact on the market.
    In my estimation, and in my market, this will have a far reaching impact that hasn’t fully been realizied as yet. I’d love to hear comments on this.

  9. Hi there,
    Thanks for the note. In case it was missed, here’s a recent post on the self-employed changes: Stated Income Mortgage Changes
    As a point of clarification (from what we understand):
    CMHC does not require two years BFS. They simply require a minimum of two years experience in the “same field.”

  10. Hi Rob,
    Your coverage has been excellent on this issue; what I am referring to is the main-stream media’s coverage of this rule change.
    I understand what you are saying with regards to two years in the same field, however the lenders I deal with have used two years bfs as a hard and fast rule.
    I guess we will have to see if the FI’s relax on this rule or not. My feeling is that they won’t, but we shall see.
    Thanks again. Great site. Keep up the great work!

  11. Thanks TheBroker,
    I know what you’re saying.
    It would be nice if more lenders loosened their 2-years BFS guidelines, given CMHC’s stated comfort level with two years in the same field. Like you, I’m not sure if that’s in the cards though…

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