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different for a variable rate borrower versus a fixed rate borrower, and that really hasn’t happened before.”
In order to pass the stress test, borrowers for uninsured mortgages must meet the minimum qualifying rate of 5.25%
or their mortgage contract rate plus 2%, whichever is greater.

As Sabour explains, mortgage rates on the fixed side are upwards of 4%. Once you add in the stress test’s additional
2%, this causes fixed rates to exceed the 5.25% stress test threshold. Therefore, if you’re going to qualify for a fixed-
rate mortgage, you now have to qualify for more than 6%. By contrast, variable rate mortgages still fall below 5.25%.

“One benefit to a variable rate today is you can qualify at the 5.25% [rate] as opposed to potentially higher,” said Lee.
“And so, that’s one option to get a larger mortgage size.”

As rates rise, existing borrowers might wonder how it affects their current payments. Sabour calculates for every
0.25% the prime rate goes up, your payment increases by about $12 on every $100,000 of your mortgage.
“If you calculate it that way, then on a $500,000 mortgage you’re still looking at just less than a $100 difference in
your monthly payment,” said Sabour. “Yes, it’s a factor, but we’re not talking hundreds of dollars or a thousand-dollar
difference in your mortgage payment.”
What should you do if you have a mortgage or are looking for one?

Whether you’re shopping for a mortgage for the first time or you’re exploring ways to renew or change your existing
mortgage, you have options when it comes to rising rates.

If you’re not comfortable with the prospect of fluctuating rates and you’re in a variable rate mortgage already, you can
opt into a fixed rate mortgage at any time with smaller term breakage penalties. However, switching from a fixed rate
into a variable mortgage tends to come with much steeper penalties, so discuss your options with your mortgage
representative.

The REALTOR.ca Payment Calculator and Affordability Calculator can help give
you an idea of what your monthly mortgage payments could look like, as well
as the size of the mortgage you may qualify for.

If you are a variable rate holder, Sabour explains you can talk with your lender to voluntarily increase your payments
to a higher amount using prepayment privileges. By upping payments close to fixed rate levels or to a higher amount
where variable rates will rise in the future, you can adjust to higher interest rates on your own terms and pay off your
mortgage faster.
“That way you’re already paying the higher monthly payments, so you don’t have the sticker shock next time the
prime rate goes up, but also the benefit of it is anything extra you’re paying through that payment is going directly
to principal,” he said. “So, you’re actually making an extra payment within that payment and reducing your principal
balance.”
As rates change frequently, Sabour and Lee stress it’s important to get pre-approved for a mortgage and lock in a rate.
That way, when you’re searching for a home, you know exactly how much mortgage you can qualify for and know
ahead of time what interest rate you can pay.
“I’d always recommend for anyone who is looking to get into the market, especially when we’re in a rising rate
environment, to lock in a rate as soon as possible,” said Lee. “You can lock in a rate for as long as 90 to 120 days, and
so it just provides peace of mind that, should rates skyrocket, you still have that rate locked in. The other thing about
a pre-approval is it will let you know how much you can actually afford.”

If you’re looking for more insights on interest rates and how they can impact you, speak with an experienced REALTOR®
for the most up-to-date information. ■

The information discussed in this article should not be taken as financial or legal advice. This article is for informational purposes only.

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