Record low mortgage rates for homes and multi-family properties will continue for at least two years, according to the Bank of Canada (BOC) as it chopped the qualifying rate for the mortgage stress test August 14 for the second time this year.

The Bank of Canada lowered its five-year conventional mortgage rate from 4.94% to 4.79%, the second rate cut since May.

The five-year mortgage is the most popular term in Canada.

The reduction lowers the qualifying rate under the mortgage stress test – which all buyers must qualify for – but it is far above actual lending rates that have plunged to among the lowest level in Canadian history.

Buyers need to qualify at the BOC five-year rate, but they don’t have to pay it.

HSBC Canada, Canada’s seventh largest bank, was offering a five-year, fixed rate of 1.89% as of August 14, available for 120 days.

The current lowest five-year rates from Canada’s big six banks as of August 14 are 2.19% at Royal Bank of Canada, Scotiabank and CIBC, according to RateSpy.

Mortgage brokers are offering even lower rates, with Toronto-based Butler Mortgage dangling a 1.66% five-year fixed-rate on mortgages of at least $300,000 with as little as 5% down.

In the multi-family sector – properties of at least five rental units – CMHC insured rates were 1.57% for a 5 year term, and 1.91% for a 10 year term, for multi-family mortgages under $5 million, and 1.27% for a 5 year, and 1.61% for a 10 year term, for properties over $5 million, noted broker Michael Lee of Mortgage Alliance on August 14.

Lee noted the rate is set daily and some analysts believe it could fall further.

“This is like free money,” said Marc Goodman of Goodman Commercial Inc. of Vancouver, which specializes in the multi-family sector.

Homebuyers can also do the math: paying a 2% annual mortgage rate when the national average home price is increasing at rate of 5.4% annually, according to the Canadian Real Estate Association, is an incentive to buy now.

In BC, the average home price in July was up 12.9% from a year earlier to $770,810, according to the BC Real Estate Association.

Further, the Bank of Canada states that lending rates will remain low for a long time.

Bank of Canada governor Tiff Macklem said in an August 14 press conference that what he wants Canadians to take away from the BOC rate cut actions is “Canadian interest rates are very low and will remain very low for a very long period.”

Macklem told reporters the BOC will not raise rates until the inflation hits its 2% target on a sustainable basis, which he estimates will take at least two years in a COVID-19-stunted economy.

“Free Money” Mortgage Feast Could Last Two Years by Frank O’Brien | BIV