19 July 2019

As a result, those who don’t have enough knowledge in this area, may end up with a mortgage at a much higher rate than the experienced buyers. At the same time, mortgage brokers don’t use posted rates, as they offer the best variants available from the beginning.

The mortgage qualifying rate is used by the federally regulated lenders to determine borrowers’ hypothetical mortgage payments. Potential borrowers have to prove they can manage such payments in order not to exceed the bank’s debt-ratio limits.

The influence of the B-20 stress test has been very strong and it’s still seen in all the segments of the real estate market. The new regulations distorted sales activity before and after their introduction. TD Bank economists say the B-20 has reduced Canadian home sales by about 40k during the period from 2017 Q4 to 2018 Q4. In addition to it, there are disproportionate influences on the hot markets of Toronto and Vancouver, and on the first-time homebuyers. With no other changes, in case we cancel the B-20 regulation at once, home sales and prices may be 8% and 6% higher, respectively, than today’s forecasts, already by the end of the next year.

Today’s rate decline means the following for a borrower purchasing a property with 5% down:

• If you earn $50,000 a year, you can afford a home which costs $2,800 (1.3%) more
• If you earn $100,000 a year, you can afford a home which costs $5,900 (1.3%) more
  (If you have a 25-year amortization and no other debts. Figures are rounded)

Today’s rate decline means the following for a borrower purchasing a property with 20% down:

• If you earn $50,000 a year, you can afford a home which costs $4,000 (1.4%) more

• If you earn $100,000 a year, you can afford a home which costs $8,300 (1.4%) more
  (If you have a 30-year amortization and no other debts. Figures are rounded)

Such a 0.15% decline will not affect the most problematic markets drastically, but it will provide a positive psychological influence on buyers. Moreover, it could act as a counter force for the slowest lending growth in five years.