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Big Banks Set Higher Qualification Rates

Posted-Qualification-Rate Lenders have started announcing their new debt servicing policies this week. One big one taking effect on April 19 is the posted qualification rate.

So far, the big banks (like TD and Scotia) seem to be applying this new posted qualification rate to both high-ratio and conventional mortgages, (despite CMHC only requiring it on insured mortgages over 80% loan-to-value).

Meanwhile, some smaller lenders have said they will not be qualifying conventional mortgages with the 5-year posted rate.  Instead, they’ll measure borrowers against a lower rate–like a 3-year fixed (which is the current standard).

That gives these smaller lenders a new potential edge versus the banks. The reason being: 80% of mortgagors have at least 20% equity.  Those with higher-than-average debt ratios might no longer fit at a bank that uses the 5-year posted rate to qualify variable and 1- to 4-year mortgages.

Then again, a bank may not necessarily want those borrowers. A bank may prefer to keep its guidelines consistent across the board. It’s easier that way for efficiency, risk considerations, and potentially for securitization purposes.