Qualifying Rate

What is it and how does it affect me?

Mortgages with variable rates or fixed terms of four years or less 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 will make you qualify at the Bank of Canada mortgage qualifying rate (5.14% for example). The qualifying rate is 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 October 17, 2016 all insured mortgages must qualify using the posted 5-year fixed rate, as published every Wednesday by the Bank of Canada.

As of January 1, 2018 all non-insured mortgages must qualify using the greater of the posted 5-year fixed rate, as published every Wednesday by the Bank of Canada or the contract rate plus 2%.