A psychological barrier is a commonly held belief that something can’t be done until someone brave enough proves everyone wrong. Take Roger Bannister for example, nobody believed that the human body could be able to run the mile in less than 4 minutes. So on May 6th, 1954 he proved them wrong by running it in 3:59.4. With this barrier broken, the record only stood for 46 days till it was broken again.
The last 10 years or so we were holding onto a psychological belief that interest rates would stay low forever. Thus giving us access to basically cheap money for as long as we wanted. This barrier too was broken this week when the 5 year fixed discounted rate rose above 5%. Our continued inflationary pressures that have pushed prices of food, fuel, housing and now bond rates to new levels.
Just a year ago the 5 year fixed discounted rate was at 2.09%. Today this same product is now at 5.09%. Even with the low rates of last year we were qualifying clients at the stress test rate of 5.25%. Now it’s the contract rate + 2%, so that means to qualify you must stress test at 7.09%. So if you were on the limits of your debt service ratio’s last year to get approved at 500K, you now have to set your sights at a lower price point. Either that or find a co-signer to help you qualify.
Quick note to let you know that it has been since before the financial crisis in 2008 that we had 5 year fixed rates above 5%.
I look forward to hearing from you in regard to your mortgage needs.
p.s.s- I should tell you that I am licensed in Nova Scotia Brokerage (2021-3000179) Broker (2021-3000180), Ontario(M18001555) & in British Columbia(BCFSA #504098).
p.s.s.s You can download my new mortgage app here