Every A-lender approval in Canada runs through a qualifying rate that is higher than your contract rate. Understanding it explains most surprises in a pre-approval.
How the qualifying rate works
Lenders qualify you at the greater of your contract rate plus 2% or 5.25%. If you are offered 4.4%, your payment is tested at 6.4%. Your actual payment uses 4.4% — the higher rate only sets the ceiling on how much you can borrow.
The two ratios that decide it
Gross debt service compares housing costs — mortgage, property tax, heat, and half of condo fees — to gross income. Total debt service adds every other monthly obligation. Both must sit inside lender limits at the qualifying rate.
The fastest ways to improve your approval
In rough order of impact per effort:
- Pay out or reduce a car loan or credit line
- Lower credit card balances below 30% of the limit
- Add a co-applicant with income and clean credit
- Increase the down payment past a price threshold
- Choose a longer amortisation where available
Where lenders differ
Ratio limits, treatment of bonus and commission income, and how rental income is counted all vary. Two lenders can produce materially different approvals from the same application, which is the practical argument for shopping the file.
Before you shop for a home, get a real qualification run at the stress-tested rate — not an online estimate at your contract rate.
Want this applied to your own numbers?
Call Phil Cragg at 866-349-4915 or request a written comparison.
Request a rate quote