Qualifying Rate

Mortgages with variable rates or fixed terms typically require that you qualify at a higher rate (called the “qualifying rate.”). The qualifying rate is determined 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%.

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 (5.25% 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.

Your payments are typically based on the contract rate (i.e., the regular rate you are quoted), not the qualifying rate.