Resources - Qualifying Rate
Qualify for a mortgage has become more difficult over the past few years. Government requirements relating to how mortgage applications can be approved has affected the term that some applicants can take for their mortgage. The government requires a stress test be completed on mortgages with terms that are less than 5 years, open or variable rate. This stress test takes the form of applicants having to qualify based on a benchmark rate set by the government. The benchmark rate is the mean of the posted 5 year rates of the big 5 banks. Since the posted 5 year rate of the banks are usally higher than the mortgage rates for 1 -4 year terms and variable mortgages, the application has to be approved as if the mortgage rate was higher even though the client is getting a lower rate. As a rsult of having to qualify at the higher benchmark rate, the applicant(s) Gross Debt Servicing (GDS) ratio and Total Debt Servicing (TDS) ratio are higher than what they would have been at based on the acutal mortgage rate for the choosen term. If a client is taking a mortgage term of 5 year or greater, they are able to qualify using the actual contract rate for that term. Due to this harder qualifying criteria more clients have to take a 5 year or greater term in order to qualify for their mortgage, depsite their preference for a different term.