Mortgages: the qualifying rate

Qualifying Rate

Mortgages with variable rates or fixed terms under five years typically require that you qualify at a higher rate (called the “qualifying rate.”).

For example, if you apply for a 2.25%, 5-year variable mortgage, the lender might make you qualify at their posted 5-year rate (5.39% for example).

Qualifying rates are used to ensure borrowers can handle their payments if rates go up.

In practice, lenders use the qualifying rate to calculate your debt service ratios. Lenders then check to ensure your debt ratios are low enough to meet their guidelines.

Here are a few things to keep in mind:

Your payments are typically based on the contract rate (i.e., the regular rate you are quoted), not the qualifying rate.
As of April 19, 2010, all insured variable and 1- to 4-year fixed mortgages over 80% loan-to-value must be qualified using the posted 5-year fixed rate, as published every Wednesday by the Bank of Canada.
Some lenders also apply the Bank of Canada qualifying rate to uninsured mortgages, and mortgages with a loan-to-value of 80% or less.
Other lenders allow lower qualifying rates if the loan-to-value is 80% or less (e.g. they use a 3-year discounted fixed rate instead of the posted 5-year fixed rate).

Always count on having to qualify at a higher than posted rate. With rates so low, they are bound to rise eventually and you’ll want this worked into your budget!

April Update

As forecasted, the Spring market is showing signs of strength in the South Okanagan and some sales that would have been unthinkable over the past few years have sailed through to completion! We do appear to be experiencing a recovery!

In Penticton, sales volume is up 53% from a year ago to $51m and prices have edged up 1% to $304,497.
In Summerland, sales volume is up a whopping 132% to $14.6m year-to-date. With prices up 13% to $325,024.
These two markets have stabilized and it’s a great time to fix and flip, move up, downsize, whatever your heart desires!

Bucking the trend this spring, Naramata sales volume is off 52%, as are average sales prices to $437,833. now that being said, this has to be taken with a grain of salt because last year had a number of very large transactions skew the average sales figures. The market here is still extremely healthy. The luxury market of Naramata will always have volatile statistics… but it remains ever desirable!

Kaleden & Ok falls has seen sales volume spike 55% over last year to $10.25m. With prices down slightly at 3% to $379,505.

Oliver sales volume is up 78% to $7.7m. with prices up 10% to $226,395. Oliver is set for a resurgence as the construction of the Okanagan’s first penitentiary gets underway this spring. I would expect this massive job creator (300 full time & permanent jobs) to assist with a South Okanagan’s rebound strongly over the next 1-3 years.

Osoyoos has seen sales volume rise 113% to $11.2m with prices up 15% to $303,147.  

This is a STRONG market, and if you aren’t listed yet, call me today! Also, if you are buying there’s a good selection of homes out there, lets go have a look!

Prepare to obtain your Financing!

This will shed some light on the best prep work for you when thinking of purchasing. You know you’ll need the bank’s money, and here is how to get it!

Your bank or mortgage broker will need you to provide:

  • Verification of Salary/Employment/Income usually at least 2 years worth T4’s or T1’s and Revenue Canada Notice of Assessments
  • Letter of Employment (on company letterhead) stating start date, full or part time, wage or salary amount
  • Current paystubs with year-to-date earnings
  • Copy of any Asset Statements (RRSP, GIC, RSP, Property, Stocks, Bonds)
  • Bank statement showing cash

 If financing on your own isn’t in the cards:

  • Gift letter – signed by both parties – (when applicable)

copy of gift deposit in applicants account – 15 days prior to close

When the purchase is made, your mortgage broker will need:

  • Copy of Contract of Purchase and Sale, with any addendums
  • Property disclosure statement
  • Title search
  • Copy of MLS listing info sheet
  • Current appraisal – if required

Closing Costs to consider:

Property Transfer Tax (unless exempt as a first time homebuyer, yay!)

Legal Expenses, conveyancing costs

Municipal Tax holdback


CMHC/GEIMCO mortgage insurance fee (if applicable)

Survey Certificate OR title insurance

Home inspection

Home insurance

Great Local Mortgage Brokers:

Shawn Olma, Mortgage Alliance, 102 – 483 Main St Penticton BC (250)490-8090

Campbell Watt, Dominion Lending Centres, 437 Main St Penticton BC (250)462-7687