“One of the most impactful changes was imposed on borrowers who want to take a variable rate, or a term of less than five years,” says Jeff Ingram, of Dominion Lending Centres
in Surrey, B.C. “Prior to the B-20, we were able to qualify clients for these types of products using a three-year discounted rate. Now when clients ask me what they qualify for, I give them two different price points: one price point that they qualify for on a five-year fixed product, and a second, lower price point, that they qualify for if they want all of their product options available to them.”
To put that in perspective, current five-year rates are between 2.49% and 2.59%.
With prices escalating rapidly in key markets such as Toronto, brokers are increasingly having to disappoint clients who’d like to get into the lower rates associated with ARMs.
“If a client is taking a five-year fixed rate product, we are able to qualify them using the contractual rate: the discounted rate that their mortgage will be based on,” says Ingram. “However, if a client wants a variable rate, or a term less than five years in length, we are forced to qualify them using the Bank of Canada’s posted rate, which is currently 4.64%.”
This increases the qualifying payment, Ingram points out, and since approvals are essentially based on an income-to-debt ratio, said clients will essentially qualify for a lesser purchase price if they want one of these products.
But, of course, the qualifying rate is not the rate these clients are actually paying.
“The contractual rate for variable rates is currently Prime minus .70,” he says. “The purpose of using the Bank of Canada’s posted rate to qualify for these products is simply to prove that these particular clients could potentially handle their mortgage at a higher rate.”
Brokers are now having to provide two price points during the qualification process - something that clients are loving.