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28 Nov

What is a Qualifying Rate?


Posted by: Sally Smith

You might here lenders or brokers use the term qualifying rate. The first question that comes after this statement is usually, is that not the same as my actual rate? The simple answer is no.

Let me explain!

The qualifying rate can be expressed in 2 different ways:

1)    The benchmark rate set by the Bank of Canada &/or

2)    A rate set by the lender to calculate your qualifying payment

Qualifying rates are generally used when you are either taking a variable rate product or a term shorter then 5 years. Lenders use these rates to ensure that if rates were to rise over the next 5-10yrs you are able to maintain your monthly payments at the higher rate. Even though your mortgage payments are based on your contract rate. It is the governments and institutions safe catch incase of inflation in the future.

Qualifying rates can sometimes make it impossible for you to qualify to have under 5yr terms or even the lower prime minus convertible terms. All mortgages over 80% Loan-to-value requires the 1-4yr & variable rates to use the benchmark rate, which is a rate set by the bank of Canada & this rate is published every Wednesday. 

You have to look at the long-term plan & strategies with your mortgage and not just the current terms and conditions as that can sometimes blind us. It could mean the difference between getting your dream home or not!

To find out what is best for you please contact me today to get your FREE mortgage consultation.