Prime Rate Cut Boosts Vancouver Home Affordability

What This Means For Affordability

If someone wanted to get a variable interest rate mortgage, they would have to qualify at their contract rate plus 2.0% (this is called the “stress test”).

Let’s take a variable mortgage rate of Prime – .55%. Before today, the prime rate was 6.45%, which would equate to a mortgage rate of 5.95%. However, since we have to qualify at a rate of 2% higher, the qualification rate would be 7.95%. After today, that qualification rate is now 7.45%.

Let’s assume that a couple has a combined income of $150,000. With 20% down, this couple could qualify for a mortgage of approximately $686,000 yesterday. Today, this same income qualifies for a mortgage of approximately $720,000. This is a 5% increase in affordability. Not huge, but at least it’s something 🙂

Notwithstanding the above, if a client can get a fixed rate right now of 4.5%, their stress test qualification rate would be 6.5%, which provides for a mortgage of approximately $790,000. So today, someone who opts for a fixed rate would have 9% higher affordability than someone who goes with a variable rate.