Bank of Canada cuts benchmark mortgage rate, increasing affordability for homebuyers
Good news for some residents out there looking to purchase a home.
On August 12, the Bank of Canada lowered its five-year conventional mortgage rate from 4.94% to 4.79% -- the second time it's reduced the qualifying rate in the last three months.
The last time was in May, when the rate changed from 5.04% to 4.94%.
The most recent change to the benchmark qualifying rate will increase homebuyers' affordability by 1.5%, according to James Laird, co-founder of Ratehub.ca and president of CanWise Financial.
"Over the last few years, rule changes have made it harder for Canadians to qualify, so the recent reductions in the benchmark qualifying rate is welcome news for first time homebuyers hoping to enter the housing market," said Laird.
The decrease in the Bank of Canada's five-year benchmark rate is the result of the big banks decreasing their five-year posted rates.
According to Ratehub.ca's mortgage affordability calculator, a family with an annual income of $100,000 with a 10% down payment and 5-year fixed mortgage rate of 2.79% amortized over 25 years would have qualified for a home valued at $523,410 under the original 4.94% qualifying rate.
Under the new stress test, if they had a qualifying rate of 4.79%, they can now afford $531,230 -- a total difference of $7,820.
"Five-year fixed rates are currently at historic lows, so now is a good time for Canadian to qualify and secure a mortgage rate," said Laird.
Hopeful new homebuyers are advised speak to a mortgage professional to redo their affordability calculations using the new stress test rate and see how much their buying power has increased.
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