Effective today, the benchmark qualifying rate for insured high-ratio mortgages jumps from 5.85% to 6.10%.
That means it’s now a bit harder to get approved for a variable-rate or a 1- to 4-year fixed term…if you’re putting down less than 20%.
People choosing those terms will have to prove they can afford monthly payments based on a 6.10% interest rate.
Some lenders—including the big banks–are also applying the new qualifying rate to conventional mortgages with variable and 1-4 year terms.
We talked to brokers about this over the weekend. The resounding consensus was that this decision will cost banks market share. Many of the banks’ smaller competitors are still using the same qualifying rates on conventional mortgages that they had before the April 19 rule change. That makes it easier for borrowers with 20% down to meet debt service guidelines, and get approved.
Incidentally, there was some confusion this week about when the qualifying rate would be set. Even though the Bank of Canada updates the posted rate every Wednesday, CMHC will set the qualifying rate on Mondays instead (so the rate is consistent for the whole week).
You’ll find the qualifying rate in the left column of this website—updated every Monday.
Last modified: April 28, 2014
Congratulations on your award! (I voted for you, and henceforth dub myself “the kingmaker!!” ))
I’m curious.. is there any reason that some lending institutions don’t need to use the same guidelines as the banks when it comes to obtaining an approval for a mortgage? I thought this was a Canada-wide update on lending policies. If not, then won’t it simply shift higher risk borrowers to these smaller lending institutions? Is that what the government intended?
Rob, I’m a little confused, the BOC Website updated this rate on their site Wednesday, does it only take effect the following Monday for Lenders?
Hi Patrick,
Seems most of the lenders are adopting the CMHC changes for both high ratio and conventional deals to make policies consistent across the board which should prevent some confusion.
With your comment about shifting “higher risk” borrowers to other lenders that will qualify using our old guidelines. I don’t think this is a fair statement. Keep in mind that to avoid the new CMHC qualification policy’s a buyer has to put 20% or more as a down payment, not something I would consider a high risk borrower.
The government only intended these new policy’s to cover their own insured mortgages.
Yes sir!
ok Scott. Here’s where I’m confused. These are rules enforced by CMHC. However, with 20% down you avoid CMHC and they don’t have any say in your mortgage matters, correct?
So for rentals, you NEED 20% down, so basically, CMHC doesn’t insure rentals any more, correct?
Thanks.
CMHC does still insure rentals and some people still get CMHC insured mortgages with 20% down.
You don’t actually need 20% down to buy a rental. You can use a non-insured lender up to 90% LTV.
ok. so how does CMHC still insure rentals? By having 20% down don’t you avoid CMHC?
Why would you still have CMHC involved in anything that has 20% down?
Thanks.
Hi Jim,
What lenders offer non-insured 90% LTV on rentals…please share if you know or the name of the broker who can get this. Thanks!
TDFS is one.
Thank you! They are only through the broker channel correct? I believe I asked a TD mobile mortgage specialist about them once and he hadn’t even heard they existed!
We owe you one Dave. :-)
@Kev
Some lenders insure conventional mortgages through CMHC for securitization reasons.