Effective immediately, the Bank of Canada Qualifying Rate Drops to 5.19%
Well here is a quick refresher. The Bank of Canada created and set a minimum qualifying interest rate in an effort to make sure that homeowners did not take on too much debt just because interest rates are low. (at least that is what they say their motivation is). Because I can currently get you many short term interest rates on terms under 5 years that are around 3% or lower, the Bank of Canada fears that anyone taking those rates might be in for a shock if interest rates were to rise, and may be unable to afford their payments. So as a precautionary measure, even though you may be getting a 1, 2, or 4 year mortgage at approximately 3%, the Bank of Canada makes you qualify for that mortgage as if you were getting a 5.19% rate.
So you can see how they are forcing you to be conservative. They are making sure that even if rates rise, your mortgage will be affordable and you will not have over spent on your real estate purchase.
Lethbridge Real Estate solution: The best way to deal with this situation is to lock into a 5 year mortgage rate. If you lock into a 5 year fixed rate mortgage, then the Bank of Canada qualifying rate does not apply. The justification being that you are protected by having a stable mortgage payment for 5 years and so that should be ample time for you to anticiapte and prepare for interest rate increases or changes in the economy.
Right now 5 year fixed mortgage rates are as low as 3.39%. They may in fact go slightly lower due to the sluggish economy and the fact that the US and Europe are dragging us down.
If you would like to know just how affordable a new Lethbridge mortgage is or if you have a mortgage coming up for renewal, give me a call and lets talk about interest rates.
Robert W May is a Real Estate Broker in Lethbridge Alberta, having now been in the industry for over 23 years. . He was also a licensed Lethbridge mortgage broker and financing expert with Canada First Mortgage of Calgary Alberta for the past 10 years. He is an industry leader always willing to help train and educate others in how to improve their business models for financial and personal benefit.