What you need to know about the Big 6 mortgage rate hike
At first glance, the posted rate hikes by the Big Six Banks* don’t seem like they’re a huge deal since no well-qualified borrower would actually pay posted rates.
However, with the new stress test, these posted rates play a far more important role. Here’s what you need to know:
The double whammy
There’s been a long history of the Big Six Banks using posted rates to inflate penalties. Now, in addition to larger penalties to break a mortgage with a Big Six Bank, these posted rates are used to determine the amount Canadians can borrow, as the new “stress test rate” is the greater of the mortgage qualifying rate (MQR), or the contract rate + 2% – whichever is higher. When posted rates go up, so does the qualifying rate, and when the qualifying rate goes up, purchasing power drops across the board.
First-time home buyers
For first-time home buyers just entering the housing market, it is SO important that, before the house hunt even begins, they obtain a proper pre-qualification or pre-approval. In a rising-rate environment, even a simple rate hold through a mortgage broker could end up saving you thousands by the time you buy.
If you’re currently holding a mortgage, whether it’s up for renewal this year (like almost half of Canadians), or in the next few years, rising rates could affect you in a number of ways. The biggest impact stems from the new mortgage rules introduced at the beginning of the year which makes it harder to switch lenders at renewal. This, therefore, disincentives lenders to offer competitive rates on renewal (as they know if Canadians try to move to a new lender, they’ll have to re-qualify using the stress test). Borrowers could be stuck paying inflated renewal rates with their current lender as it may be harder to make the switch to a lender with more competitive pricing.
The bottom line
TIM L. WALKER | Mortgage Agent
Anthem Mortgage Group | Broker # M11000308
*National Bank of Canada, Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce