The interest rate used by the federally regulated banks in mortgage stress tests has declined for the first time since 2016, making it a bit easier to get a mortgage. This is particularly important for first-time homeowners who have been struggling to pass the B-20 mortgage stress test since it was introduced in early 2018.
The Bank of Canada’s benchmark posted 5-year fixed rate has fallen 15 basis points down from 5.34% to 5.19%, primarily because Canada’s big banks have decreased their five-year posted rates.
It’s the first decrease in the five-year fixed mortgage rate since September 2016, when it dropped from 4.74% to 4.64% and increased steadily since.
In my opinion, the reduced rate is a welcome change. Fixed mortgage rates are down 1.1% from December 2018 and are now near their all-time lows (a good time to qualify and secure a fixed mortgage rate), but buyers still needed to qualify at the same benchmark rate.
Although the rate has dropped slightly, it increases a home buyer’s purchase amount by 1%. A borrower with an annual household income of $100,000 with a 20% down payment would have qualified for a mortgage amount of approximately $530,000 at the previous benchmark rate of 5.34%. With the new qualifying rate of 5.19%, they can now qualify for approximately $540,000, which is about $10,000 more.
This means that you can qualify for more home today compared to earlier this year and 2018. This could mean the difference between qualifying for a mortgage on a property in the neighbourhood you wish to live in but couldn’t afford to date, a property closer to work, or a home closer to family. It also alleviates some of the pressure on first-time homebuyers, who are the most financially strained British Columbians entering the housing market. A positive move in my opinion.
This in addition to a slower housing market and a decrease in property values in some areas creates more buying power for most buyers. If you have been on the fence to purchase over the last few years and have been waiting for an opportune time, we believe the time has come. To find out how much you would qualify for in today’s market, schedule a 15-minute call with us and we will gladly run the numbers for you.
