Mortgage rates have been lowering over the last few weeks and now finally the qualifying rate which lenders use to assess debt servicing ratios has been lowered by 15 basis points to 4.79%.  This is great news as it acts to increase affordability.

The way debt servicing ratios work is that even if a borrower could obtain a mortgage at let’s say 2 per cent, that person’s lender was obligated to calculate their debt serving ratios as though the mortgage rate was higher — at almost 5 per cent.  This is called the Stress Test and this is how the government makes sure the loan wouldn’t be too difficult for the borrower to pay back at their income level if rates were to rise. If the borrower failed the test at the higher rate, the lender isn’t allowed to lend to them due to this government mandated Stress Test.

The 0.15% cut to the qualifying rate means borrowers can now be approved for a slightly larger mortgage than they could, even if their income is still the same.

This change could increase the purchasing power for borrowers by about 1.5%.  For example a borrower who earns $100,000/year and has a 10 % down payment would have been stress tested at 4.94% and be approved for a mortgage on a home valued at up to $523,410.  At the new stress test level, that same borrower would be approved for a loan on a home costing up to $531,230. That’s an increase of $7,820.

In this market any increase in affordability is helpful to buyers!