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Qualifying interest rates for mortgages

To qualify for a mortgage loan at a bank, you will need to pass a “stress test”. You will need to prove you can afford payments at a qualifying interest rate which is typically higher than the actual rate in your mortgage contract.

 

Credit unions and other lenders that are not federally regulated do not need to use this mortgage stress test.

 

The qualifying interest rate your bank will use for the stress test depends on whether or not you need to get mortgage loan insurance.

 

If you need mortgage loan insurance, the bank must use the higher interest rate of either

  • the Bank of Canada’s conventional five-year mortgage rate
  • the interest rate you negotiate with your lender

 

If you don’t need mortgage loan insurance, the bank must use the higher interest rate of either:

  • the Bank of Canada’s conventional five-year mortgage rate
  • the interest rate you negotiate with your lender plus 2%

For example, say you apply for a mortgage at a bank and that you have a down payment of 5% of the value of the home. You’ll need to get mortgage loan insurance since your down payment is less than 20%.

 

Assume that:

  • the interest rate you negotiate with your lender is 3.00%
  •  the Bank of Canada’s conventional five-year mortgage rate is 4.99%

You'd need to qualify at the higher of the two interest rates, which is the Bank of Canada’s conventional five-year mortgage rate, even if you'll be paying the lower interest rate in your mortgage contract.

 



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