As of April 19, all variable or fixed-rate, high-ratio insured mortgages will be qualified using either the chartered-bank five-year posted rate or the contract rate, whichever is greater. This change comes as lenders announce their new policies regarding debt servicing.
The Bank of Canada will post this qualifying rate (also known as a benchmark rate) every Monday. Some banks, including TD and Scotia Bank, appear to be applying this rate not only to high-ratio loans, but to conventional mortgages as well.
Some smaller lenders have stated that they will qualify conventional mortgages on a lower rate such as the current standard, the three-year fixed rate, instead of using the five-year posted rate.
Though the flexibility smaller lenders are offering may increase their market share (20 per cent of mortgagors have less than 20 per cent equity), it may also increase their risk potential. Regardless, all mortgages attained in Canada with 20 per cent or less equity must be backed by mortgage default insurance.
