The Bank of Canada, at the June 5th policy meeting, made the decision to lower rates by 25 basis points due to evidence of a slowing Canadian economy and lessening inflation. This is the first time the Bank has moved rates since July 12th 2023 when the overnight rate was raised to 5%.
It’s pretty rare for the B of C to lower rates before the US does and I believe it’s quite indicative of just how slow the economy really is. High housing costs are even mentioned in the latest policy minutes. There’s little doubt rental and mortgage costs are impacting discretionary spending.
Average mortgage rates are down sharply compared to the late fall, with 3, 4 and 5 year fixed mortgage rates sitting in a band in the 5% range.
The current July 2024 average rates from a basket of lenders across the country are:
1-year fixed insured 7.32%
2-year fixed insured 6.64%
3-year fixed insured 5.85%
4-year fixed insured 5.73%
5-year fixed insured 5.22%
3-year variable insured 6.95%
5-year variable insured 6.41%
Is the mortgage stress test still a thing in 2024? Yes it is, and with the higher rates we’ve seen, it’s even harder to qualify for a mortgage. The rules require you to qualify at either 2% above the rate your lender is offering you or 5.25%, whichever is higher.
Being forced to qualify at the higher stress test rate causes the principal portion of your monthly mortgage payment to shrink, lowering the maximum amount you’ll be allowed to borrow for your mortgage. But the rate you’ll actually pay once you buy is the rate you are offered by your lender. Your monthly payments will be calculated from this lower rate, not the stress test rate. As a result your monthly mortgage bill will be smaller too.
The stress test has been quite unpopular so the federal government has rolled out several new changes to make it easier to buy a home. They are now offering a first time buyer’s credit of $5000, and an increase in withdrawals from your RRSP to $35,000.
In addition existing borrowers are no longer required to re-qualify at the stress test rate when they renew or refinance their mortgages. This will allow borrowers some flexibility if they want to choose a different lender as they are no longer under the pressure of qualifying at an additional two percentage points.
If you’re looking for mortgage info or help please reach out.
