Debate heats up following one industry professional’s suggestions that tougher qualification rules are required.
Brokers took to the comments section of MortgageBrokerNews.ca to voice their opinions following a suggestion that qualification standards for five-year fixed rate mortgages should be more difficult.
“While I agree with Ross there is a fundamental risk in our distorted real estate marketplace; I don't see that it makes sense to lay it at the feet of qualifying a 5-year fixed rate mortgage at the contract rate,” Ron Butler
Butler Mortgage wrote. “Interest rates have bounced around quite a bit in the last 30 years and Canadian homeowners have always found a way to manage all of those fluctuations.”
Clients taking a five-year mortgage rate can qualify at the contract rate. However, variable rate mortgages and fixed mortgages under five years typically require homebuyers to qualify at a higher “benchmark” rate.
The comments poured in after Calum Ross
, a Toronto-based broker, made a sombre prediction about five-year qualifying rates last year.
“100% there should be tougher standards for qualifying for a five-year fixed rate; I’m in awe that they haven’t done it,” Calum Ross
, principal broker of Verico Calum Ross
Mortgage, told MortgageBrokerNews.ca last week. “With the Big Short movie out and everyone saying Canada is immune (to a similar downturn); I’m going to say the five-year qualifying rate is a disaster waiting to happen."
While it was an unpopular opinion among many, several brokers agreed with Ross’ premise.
“The fact is that a person opting for a variable mortgage or for a term less than five years is expected to be able to afford a rate increase up to the benchmark of say 4.64%, for their own protection just in case,” Ad Lakhanpal, a broker with Mortgage Alliance
, wrote in the comments section of MBN. “The same idea should apply to a person opting for a five-year term. This way, everyone including borrowers, banks and insurers are protected equally.”