{"id":9183,"date":"2018-05-23T11:11:46","date_gmt":"2018-05-23T18:11:46","guid":{"rendered":"http:\/\/www.roryc.ca\/blog\/?p=9183"},"modified":"2018-05-16T11:01:19","modified_gmt":"2018-05-16T18:01:19","slug":"bank-of-canada-stress-test-rate-increases-to-5-34","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2018\/05\/bank-of-canada-stress-test-rate-increases-to-5-34\/","title":{"rendered":"Bank of Canada Stress Test Rate Increases to 5.34%"},"content":{"rendered":"<p style=\"text-align: justify;\">It just became slightly tougher to qualify for a mortgage, as Canada\u2019s central bank just upped the rate used to stress test new borrowers.<\/p>\n<p style=\"text-align: justify;\">The Bank of Canada hiked its conventional five-year fixed mortgage rate on Thursday, May 10th, from 5.14 to 5.34%. Now, mortgage applicants who are paying less than 20% down on their home purchase must prove they can qualify at this rate in order to receive home financing. Borrowers who are making larger down payments must now either qualify at this rate, or their contract rate plus 2% \u2013 whichever is higher.<\/p>\n<p style=\"text-align: justify;\"><strong>What is the BoC\u2019s Conventional 5-Year Mortgage Rate?<\/strong><\/p>\n<p style=\"text-align: justify;\">While not the actual rate used by consumer lenders, the BoC\u2019s conventional 5-year mortgage rate reflects the current standard interest rate for five-year fixed mortgages. It is determined by averaging the five-year fixed posted rates offered by each of Canada\u2019s Big Six lenders \u2013 and they\u2019ve been on a hiking spree as of late.<\/p>\n<p style=\"text-align: justify;\">TD started the upward trend, increasing its rate 45 basis points to 5.59% in April \u2013 an abnormally large hike that the bank attributed to the \u201ccompetitive landscape, cost of lending, and mortgage risks\u201d. And, because the big banks tend to move in lock-step, the remaining five followed suit, with increases between 5 \u2013 20 basis points for their five-year fixed posted products.<\/p>\n<p style=\"text-align: justify;\"><strong>Why Are Fixed Mortgage Rates Rising?<\/strong><\/p>\n<p style=\"text-align: justify;\">Fixed mortgage rates are on the rise because the yields on government bonds have also been on an upward trend. These bonds are used as a funding method by the banks; when yields rise, that signals lower investor demand, and so they increase their fixed borrowing products to fill the gap.<\/p>\n<p style=\"text-align: justify;\">Bond yields have been steadily ticking higher since June 2017, and are currently at 2.2% \u2013 the highest in six years. For perspective, in 2015 \u2013 2016, when fixed rates were at record lows, yields trended below 1%.<\/p>\n<p style=\"text-align: justify;\">While this may sound odd, this upward movement is actually in response to a strengthening economy, and more specifically, the Bank of Canada hiking its Overnight Lending Rate (it has done so three times since July 2017, to the current 1.25%), as well as hikes from its US counterpart, the Federal Reserve. Bond investors aren\u2019t big fans of tighter monetary policy \u2013 when rates rise, it immediately devalues the return they can expect to receive on their investments (also called a coupon). For this reason, rate hikes lead to bond sell offs, which in turn lead to higher yields, and, ultimately, higher fixed mortgage rates.<\/p>\n<p style=\"text-align: justify;\"><strong>How Should Mortgage Borrowers Prepare for Higher Rates?<\/strong><\/p>\n<p style=\"text-align: justify;\">With both variable and fixed mortgage rates on the rise, along with the qualifying criteria for stress tests, it\u2019s more important than ever to build a financial buffer into your shelter costs.<\/p>\n<p style=\"text-align: justify;\">While the 20-basis-point increase to qualifying criteria isn\u2019t enough to make or break a mortgage application, the stress test \u2013 which came into effect on January 1st \u2013 in general reduces the average buyer\u2019s affordability by roughly 20%. For a new borrower, this could mean downsizing home buying expectations, either purchasing a home at a lower price point, or house hunting in a more affordable market.<\/p>\n<p style=\"text-align: justify;\">For existing fixed-rate borrowers, lenders hiking their rates won\u2019t have an immediate impact \u2013 but they may need to contend with a higher interest rate environment when they come up for renewal (those refinancing their mortgages, or switching to a new lender upon renewal will indeed be stress tested).<\/p>\n<p style=\"text-align: justify;\">And, while recent fixed-rate increases aren\u2019t applicable to variable-rate borrowers, the fact that the Bank of Canada is on an upward trend \u2013 at least one more rate hike is expected before 2018 is through \u2013 means monthly payments are likely to rise in the medium-term.<\/p>\n<p style=\"text-align: justify;\"><a href=\"https:\/\/www.zoocasa.com\/blog\/bank-of-canada-stress-test-rate-increases-to-5-34\/\" target=\"_blank\" rel=\"noopener\">Bank of Canada Stress Test Rate Increases to 5.34%<\/a> by Penelope Graham | zoocasa<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It just became slightly tougher to qualify for a mortgage, as Canada\u2019s central bank just upped the rate used to stress test new borrowers. The Bank of Canada hiked its &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2018\/05\/bank-of-canada-stress-test-rate-increases-to-5-34\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-9183","post","type-post","status-publish","format-standard","hentry","category-mortgage"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Bank of Canada Stress Test Rate Increases to 5.34% &#8226; Rory C Real Estate | Oakwyn Realty<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.roryc.ca\/blog\/2018\/05\/bank-of-canada-stress-test-rate-increases-to-5-34\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Bank of Canada Stress Test Rate Increases to 5.34% &#8226; Rory C Real Estate | Oakwyn Realty\" \/>\n<meta name=\"twitter:description\" content=\"It just became slightly tougher to qualify for a mortgage, as Canada\u2019s central bank just upped the rate used to stress test new borrowers. The Bank of Canada hiked its &hellip; [read more]\" \/>\n<meta name=\"twitter:creator\" content=\"@RoryClipsham\" \/>\n<meta name=\"twitter:site\" content=\"@RoryClipsham\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Rory Clipsham\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2018\\\/05\\\/bank-of-canada-stress-test-rate-increases-to-5-34\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2018\\\/05\\\/bank-of-canada-stress-test-rate-increases-to-5-34\\\/\"},\"author\":{\"name\":\"Rory Clipsham\",\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/#\\\/schema\\\/person\\\/0672b9777e67473b9bd9247df49499c7\"},\"headline\":\"Bank of Canada Stress Test Rate Increases to 5.34%\",\"datePublished\":\"2018-05-23T18:11:46+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2018\\\/05\\\/bank-of-canada-stress-test-rate-increases-to-5-34\\\/\"},\"wordCount\":623,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/#\\\/schema\\\/person\\\/0672b9777e67473b9bd9247df49499c7\"},\"articleSection\":[\"Mortgage\"],\"inLanguage\":\"en-CA\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2018\\\/05\\\/bank-of-canada-stress-test-rate-increases-to-5-34\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2018\\\/05\\\/bank-of-canada-stress-test-rate-increases-to-5-34\\\/\",\"url\":\"https:\\\/\\\/www.roryc.ca\\\/blog\\\/2018\\\/05\\\/bank-of-canada-stress-test-rate-increases-to-5-34\\\/\",\"name\":\"Bank of Canada Stress Test Rate Increases to 5.34% &#8226; 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