Often, lower rates are offered for shorter terms or for variable rate mortgages. Short term and variable rate mortgages are considered to be less stable than a longer term fixed rate mortgage because the payments are subject to change when the market changes. In order to ensure that payments will continue to be affordable even if they increase in the short term, the Government of Canada introduced the “qualifying rate” (aka benchmark rate)
The benchmark rate will be close to the current 5 year posted rates of the big banks, which is typically 1-2% higher than the best rate that may be offered on a 5 year fixed rate term. This higher rate is used to qualify borrowers who want a variable rate mortgage or a mortgage with a term of less than 5 years. By qualifying at the higher rate, we can show that any payment increases would still be affordable 🙂
