A closer look at bank rates
Home buyers with less than a 20 per cent down payment applying for a high-ratio mortgage with a regulated financial institution are typically offered a contract mortgage interest rate.
The regulated financial institution is required to ensure the borrower can make mortgage payments at one of two rates:
- the Bank of Canada qualifying rate, or
- the contracted rate plus 2 per cent.
Borrowers must qualify for the higher of the two rates, which means their income must be sufficient and their debt low enough to make mortgage payments at that higher rate. This is known as the stress test.
How is the Bank of Canada’s rate determined?
As of November 1, 2023, the average contract five-year fixed rate in the market is 5.75 per cent, so with the stress test this would be 7.75 per cent.
Vancity (BC’s largest credit union) is offering a five-year fixed term residential mortgage rate of 5.76 per cent.
The borrower must qualify for two per cent above this or 7.76 per cent
A household earning $195,000 with a 20 per cent down payment would currently qualify for a mortgage of $633,412 including mortgage insurance. (Apartment benchmark price is $770,200 at October 31, 2023 REBGV)
Before the stricter rules, this household buying a $770,200 home, with the same mortgage rate and downpayment, would qualify for a mortgage with an income of $165,724.