Benchmark Rates

The benchmark rate made headlines in the early part of 2010 when the Government of Canada announced new rules for lending money and qualifying for mortgage loans in Canada. The benchmark rate is the rate that lenders need to use to qualify mortgage borrowers in Canada who want to secure a variable rate mortgage or a mortgage term less than 5 years. Due to perceived volatility that the government wants to keep at a low level, they feel this benchmark rate should be based on a bank posted level. Bank posted rates are much higher than rates that can be available through a mortgage broker in Canada. Typically, the benchmark rate is around 1.50% higher than a mortgage broker’s best rates.

A History on Benchmarks

The term benchmark as we know it today probably originated from the chiseled horizontal marks that British ordnance surveyors made in stone structures used as a reference point for the calculation of heights and altitudes. The use of benchmarks goes back hundreds of years and although many have now disappeared, you can still find some today mainly on old churches and bridges throughout Britain.

The purpose of this exercise is to ensure that those who qualify for a mortgage in Canada can qualify with breathing room. In the event of a downturn or increase in rates down the road, this prevents Canadians from becoming orphaned homeowners without a lender willing to assist them. This has happened in the past where a borrower becomes over leveraged and they own a home that they barely qualified for. In the case of a variable rate mortgage if the rates start to climb, a maxed out borrower will not be able to afford the payments based on a conversion from variable to a much higher fixed rate mortgage. The benchmark rate allows them to qualify at a much higher rate so that they can prove to the lender, even in the event of a substantial mortgage rate increase, that they are fully capable of handling that mortgage loan.

Benchmark rates, in the long run, will help to create stability in the mortgage market in Canada while making sure that there is not a bubble that is created in the meantime. Although mortgage rates in Canada are still very low, it is a mistake to borrow more money than you can comfortably repay, and due to that reasoning the benchmark rate has been introduced to keep the Canadian housing market in check. Sourcing the best rates in Canada is still very possible. The benchmark rate and the new rules do not change the availability or value of these best rates in Canada.

^* Mortgage interest rates are subject to change without notice at any time. Some rates may be subject to minimum credit score, loan amount and may only be available certain lending areas. A quick closing loan condition may be required. Does not apply to preapprovals. Contact CanEquity for details. Although every attempt is made to ensure the accuracy of our website, the above mortgage information should only be used as a guideline and CanEquity makes no guarantees on any rates shown. CanEquity Mortgage always recommends that you consult a mortgage broker before making a decision. For any mortgage related questions or to speak to one of our mortgage specialists, please call 1-888-818-4262. CanEquity does not guarantee to have the lowest rate in Canada. We do make every attempt though to find the best mortgage deal possible for all of our clients.

^§ Our mortgages are only available to Canadian residents or foreigners purchasing property located in Canada.