Increase to Mortgage Qualifying Rate (MQR)

2017-07-25 | 11:36:03

Yesterday, July 24, 2017, news began to quietly spread that the Bank of Canada has increased its benchmark qualifying rate from 4.64% to 4.84% effective immediately.

The mortgage qualifying rate (MQR) is currently applied to all INSURED and INSURABLE mortgages. It is essentially a "stress test" or buffer to help ensure that a borrower can withstand future rate increases. The borrower is qualified as though the MQR is the actual rate, when in fact, the contract rate might be much lower.

For someone with a fixed rate mortgage, fixed rates at renewal could increase if bond yields continue to increase. For someone with a variable rate mortgage, variable rates could increase any time the BoC decides to increase its key lending rate (or as TD Canada Trust has shown us, whenever they randomly choose to increase their Prime rate).

What does this increase to the MQR mean for borrowers? It means that it just got even harder to qualify for more borrowed funds, especially for first time buyers whose only equity is their down payment.

Under current mortgage guidelines the MQR does not apply to UNINSURED mortgages, which include refinances, amortizations beyond 25 years and purchases that are $1M+. However, there is widespread speculation that it is just a matter of time until The Office of the Superintendent of Financial Services (OSFI) applies the MQR to uninsured mortgages as well, a category that has continued to grow quite steadily. If this occurs, all mortgages -- maybe with the exception of private loans -- will be qualified using the MQR.