As of June 2022, we are currently seeing unnatural discrepancies in the size of mortgage loans borrowers will qualify for, and it’s all because of a rift in the space-time stress test continuum.
You see, most 5-year fixed mortgage rates are already over 5%, making their stress test a full 2% higher at 7% or more. Concurrently, the mortgage stress test rate for variable mortgages is still a comparatively low 5.25% or so.
In order to maximize the amount homebuyers can qualify for, many borrowers are choosing a variable-rate mortgage, even if their actual personal preference is for a fixed-rate mortgage.
Last week, in response to one of the big banks increasing its uninsured 5-year fixed rate to 5.23%, rate expert Rob McLister tweeted, “Borrowers must prove they can afford a stress tested payment @ 7.23%—almost 200 bps higher than stress test…
