CIBC MORTGAGE AFFORDABILITY CALC PLUS
7.24% (as per OSFI’s contract rate plus 2% criteria).Īccording to our mortgage affordability calculator, a Toronto buyer with an annual income of $100,000, a 20% down payment, and 5-year fixed mortgage rate of 5.24% amortized over 25 years would have qualified for a home valued at $523,308 under a 7.24% qualifying rate.Even if you qualify for the lowest rates, you bank will run affordability calculations for two different mortgage rates: Let’s say the best mortgage rate in Canada is 5.24% and you must prove you could carry your mortgage at an additional 2% as per the stress test criteria. Let’s have a look at an example of the mortgage stress test. Generally, this will result in you being able to borrow a smaller amount of money. This means that your income needs to be high enough, and your existing debt low enough, to be able to pay down your mortgage at that higher rate. However, as a result of recent rate hikes, all contracted mortgage rates now exceed 3.25%, meaning all mortgages are currently stress tested at their contract rate plus 2%. The OSFI qualifying rate was 4.79%, but on June 1, 2021, the minimum qualifying rate increased to 5.25%. To do this, they check your ability to make your payments based on the Office of the Superintendent of Financial Institutions (OSFI) minimum qualifying rate (MQR), which is based on the mode average of posted 5-year fixed rates from Canada’s big banks, or your contracted rate plus 2%, whichever is higher. When you apply for a mortgage (including joint mortgages), you’ll be offered a contracted rate – hopefully, this will be as low as possible! However, your bank needs to check you’ll be able to pay back your mortgage, even if your mortgage rate rises during your mortgage term. Knowing you can still afford to pay your mortgage as interest rates remain high is important, and should affect the kind of home you decide to buy. The bond market has also responded with rising yields – bypassing the 4.1% range – which in turn has pushed fixed mortgage rates higher over the course of last year. This is because the Bank of Canada aggressively hiked its Overnight Lending rate 10 times between March 2022 and July 2023, bringing the benchmark cost of borrowing up 4.75 basis points, from a pandemic low of 0.25% to an even 5%. According to the Canadian Real Estate Association, Canada’s average home price was $668,754 in July 2023 that marks an increase 6.3% from the same time period the previous year.Īnd, as mentioned, we are in a rising interest rate environment: 5-year fixed and 5-year variable mortgage rates have gone from lows of 1.39% and 0.85%, respectively, in 2021 to 5.24% and 5.95% as of August, 2023. This type of rainy-day planning is important for a few reasons. If your income was reduced or you lost your job, could you still afford to make mortgage payments? What if interest rates spike or you need to refinance your home? You can use this information to make better investments and avoid costly mistakes.Ī mortgage stress test is a way of determining exactly how much you can afford (and under what circumstances). For example, let’s say you’re starting a retirement fund with an RRSP: While an annual return of 5% might be a reasonable expectation, what if your investments only make 4% each year? Will you still have enough money to retire at 60? If not, that RRSP has failed the stress test. It involves modelling a negative scenario before an investment is made. In finance, planning for a worst-case scenario is called a stress test. This borrowing threshold is a way to prepare for the worst when it comes to rising rates eroding affordability - and it’s also a legal requirement in Canada.īut how and when are borrowers stress tested, and what is the criteria? Here’s what you need to know if you’re in the market for a mortgage.
However, this risk has largely been mitigated by the mortgage stress test in Canada. Following the steepest Bank of Canada rate hiking cycle in history over the last year and a half, payments have increased faster than anyone could have predicted for a large number of borrowers.
Taking out a mortgage is typically the largest financial commitment many Canadians make – and in today’s rising rate environment, that can come with some significant risks.
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