The Mortgage Glossary: What is the Qualifying Rate?

In 2010, the Department of Finance introduced the Qualifying Rate as a new way to assess borrower eligibility and ensure borrowers can handle their payments should rates begin to rise. Your lender will use the qualifying rate to calculate your debt service ratios, which must be at or below their guidelines. The qualifying rate is a 5-year rate published every week by the Bank of Canada. For terms less than 5 years and for all variable rate mortgages, the qualifying interest rate is used if it is higher than the contract rate.  For 5-year terms and longer, the qualifying rate is the contract rate i.e the rate your lender is offering you.

What does the qualifying rate mean to you?

The qualifying rate applies when you want a variable or 1 to 4-year fixed mortgage.  The qualifying rate is typically higher than the rate being offered by your lender. It is not used for qualifying 5-year fixed mortgages; you qualify based on the contract rate.A 5-year fixed mortgage may be the only term that qualifies you for the mortgage amount you need. Your actual payments are based on your contract rate, not the higher qualifying rate.

Confused? Don’t worry, your mortgage broker is an expert at providing the advice, education and resources you need as a homebuyer. It’s important that you understand the terms you encounter when making what is likely your biggest purchase decision, so
don’t be afraid to ask!