Anyone shopping for a new home over the last few years has had their share of frustration navigating through the sea of buyer competition. The rising interest rates have not made things any easier. As rates rise, so does the qualifying rate (stress test).

This makes it difficult for many, first time homebuyers in particular. Some are already finding themselves shut out of the market all together….and it’s about to get tougher.

 

Mortgage Qualification in Early 2022 Vs. Qualification Today

Under the mortgage stress test, mortgage seekers need to qualify based on the higher of the benchmark rate (currently 5.25%) or 2.00% above your actual mortgage rate.

Earlier this year, the benchmark rate was the higher of the two, which means that the qualifying rate was 5.25% for just about everyone.

This has since changed.

Today’s fixed rates for owner occupied homes range from 4.79% to 5.39%, depending on your situation, which puts the qualifying rate at 6.79% to 7.39%.

The current variable rates range from prime -1.15% to prime -0.65% (4.30% to 4.80%), which gives us a lower qualifying rate of 6.30% to 6.80%. This means you can expect to qualify for roughly $25,000 to $40,000 more with a variable rate mortgage (depending on which mortgage rate pricing category you fall under).

This is based on TODAY’s rates. However, more increases are on their way.

The Bank of Canada is expected to increase their rate by another 0.50% to 0.75% before the end of the year, which will drive the lowest qualification rate up further. As with the last few rate hikes, they will likely front load their next move, meaning we could see the full increase come in their next scheduled announcement on October 26th.

This would bring the maximum mortgage qualification for fixed and variable rates closer together. But as of now, choosing a variable rate mortgage will result in maximum qualification.

If you’re hoping to qualify for a larger mortgage, then there may be other possibilities which I explain in my blog on 7 Ways To Qualify For A Larger Mortgage.

 

Conclusion

If you’re looking to qualify for the maximum mortgage possible, then I would commit to having a purchase agreement in place no later than October 24th at the very latest. This gives us enough time to get your mortgage approved ahead of the next rate increase.

If you have a mortgage renewal within the next four months, please reach out to us so we can ensure to get you locked in prior to any further rate increases.