Remember, there is more to a mortgage than just the rate!

In Canada, when applying for a mortgage, the Office of the Superintendent of Financial Institutions (OSFI) requires that borrowers undergo a stress test to ensue that they can continue to make payments if mortgage rates were to increase. To do this, the lenders use an interest rate of 5.25% or your mortgage interest rate plus 2%, whichever is higher to calculate your payments. The calculated payments would is then compared it to your annual household income to make sure it fits into the allowed debt servicing ratios (a topic for another blog post).

For example, lets say today you could get a fixed rate mortgage 3.75%. You would have to qualify at that rate plus 2%, or 5.75%. However, if you could get into a variable rate mortgage at 2.2%, the stress test would be 5.25% (because 2.2% + 2% = 4.2%, and so 5.25% is higher).

This can make a difference to how large a mortgage you can qualify for. If you were hoping for at a fixed rate, but due to the stress test the value of the home you were hoping to buy is unattainable, looking at a variable rate may allow you to afford the home of your dreams.

Using an example of an annual household income of $100,000, the amount you can qualify for could be around $25,000 less with a fixed rate vs a variable rate using the above example rates.

If you have any questions or want some guidance with what value mortgage you can qualify for, please reach out.