Mortgage Gap Created By The Posted Rate Leaves Homebuyers With A Decision To Make

Financial Post ~ March 22nd, 2017

Call it the gap between what you have to pay and what you can afford to pay — it’s going to be considerable when you qualify for your next mortgage. Now the question is what should you do with that money?

Ottawa tightened mortgage rules in October and the one requirement that has disrupted the lending world is the stipulation that consumers qualify based on the Bank of Canada posted rate for a five-year fixed-rate mortgage.

That rate — it’s based on the most common posted rate of the big six banks for a five-year fixed rate mortgage — has been stuck at 4.64 per cent since the government announced the new measures in October 2016. Qualifying with that rate is a heavy burden and creating a huge gap when it comes time to deciding how much you will actually pay, considering consumers can lock in a rate for as low as 2.28 per cent for five years, according to ratespy.com.

“It is affecting a lot of people here,” said Geoff Willis, managing broker with Vancouver-based Origin Mortgages. “A lot of people look at the interest rate online and think that’s what they’ll qualify on. They go out and buy a new home, they have seven days to firm up a deal, and then they go their bank and find they can’t get financing.” That can mean potentially watching your deal fall apart.

Here’s the math on how on you will have to qualify in today’s market. Considering the Canadian Real Estate Association said the average home in the country sold for $551,400 in February, that means to qualify for a federally backed loan you’ll need to come up with at least $30,140 to get a loan for $521,260. (Government regulations stipulate that you must have five per cent down on the first $500,000 of a home and 10 per cent on any portion above $500,000 up to $1 million.)

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