Paperwork-it’s a fact of life. You need it and we as mortgage professionals also need it. Below is a list of must have documentation BEFORE you start going through the mortgage approval process.

Personal Information
This will be the basic information we require to start your mortgage process. It will include your age, marital status, and number and age of kids. For this first step, a divorce/separation agreement if you are going through a divorce or were previously divorced will also be required.

Employment Details
Your employment details will require more paperwork than your basic details. This will include:

• Proof of income (T4 slips, job letter, paystubs, and/or personal income tax returns – T1 Generals)
• Notice of Assessments from the last two years

If you are self-employed then you will also need to provide any incorporation documents, financial statements and submit full personal tax returns (T1 Generals) as well as a CRA Notice of Assessment (NOA) for both the corporation as well as you personally. If you don’t have these documents on hand or can’t find them, we highly recommend using a document service like Easy NOA. We have had clients use them with fantastic results and no hassle on your end. Check them out by visiting their website – easynoa.ca.

Other Income Sources

• Typically, this is a statement on your part but the lender might ask for back-up documentation. This may include:
• Pension documentation and information
• Rental income property income documentation
• Part time work paystub with job letter
• Child Tax Benefit documentation
• Child/Spousal support documentation
• Investment Income documentation
• Disability income documentation

Documentation of current property
If you already own a property, you will need to have a copy of your current mortgage statement on your current property and a copy of last year’s property tax statement. You may also be asked to provide this year’s up to date property tax statement.

Keep in mind that every person’s situation is unique and this list only outlines the traditional documents required to pursue your mortgage. For example, if you receive child support you will need to have proof of that (i.e. copy of your separation/divorce agreement and the last three months bank statements showing the payment of the child support to you) or if you have experienced bankruptcy you will need to provide a list of debts paid off with a copy of your bankruptcies discharge papers.

Again, we know that sometimes things get lost or misplaced (we have been there too!). If you find yourself scrambling to find one of these documents or another document that your mortgage broker has requested, a service like Easy NOA can have it delivered to your inbox within 24 hours. Having these documents on hand in preparation for going through the mortgage approval process will make the entire experience run much smoother—and make it an enjoyable one! If you have any questions, give your Dominion Lending Centres mortgage specialist a call.

Although going through the pre-approval process is more important than ever, the actual term ‘pre-approval’ is often misleading. It really addresses just a few variables that may arise once in the middle of an actual offer.

The pressure in many markets has never been greater to write a condition-free offer, yet due to recent changes to lending guidelines by the federal government, the importance of a clause in the contract along the lines of ‘subject to receiving and approving satisfactory financing’ has also never been greater. (There are variations to be discussed with your Realtor around the specific wording of such clauses.)

Often clients are reluctant to write the initial offer on a property without feeling like they are 100 per cent pre-approved, an understandable desire. The risk being that many clients then falsely believe they have a 100 per cent guarantee of financing, and this is not at all what a pre-approval is.

A lender must review all related documents, not just the clients personal documents, but also those from the appraiser and the realtor as the propety itself must meet certain standards and guidelines.

The pre-approval process should be considered a pre-screening process. It does involve review and analysis of the clients current credit report, it should also include a list for the client of all documents that will be required in the event that an offer is written and accepted. Ideally your Mortgage Broker will review all required documents in advance, but few lenders will review documents until there is an accepted offer in place.

Clients should come away from the initial process with a clear understanding of the maximum mortgage amount they qualify for along with the various related costs involved in their specific real estate transaction. Equally as important; a completed application allows the Mortgage Broker to lock in rates for up to 120 days.

Why won’t a lender fully review and underwrite a pre-approval?

• Lenders do not have the staff resources to review ‘maybe’ applications – they have a hard enough time keeping up with ‘live’ transactions.
• The job you have today may well not be the job you have by the time you write your offer. (ideally you do not want to change jobs while house-shopping)
• If more than four weeks pass then most of the documents are out of date by lender standards, and a fresh batch needs to be ordered and reviewed with the accepted offer.
• The conversion rate of pre-approvals to ‘live transactions’ is less than 10 per cent, and this alone prevents lenders from allocating resources to reviewing pre-approvals.

It is this last point in particular that makes it so difficult to get an underwriter to completely review a pre-approval application as a special exception. Nine out of ten times that underwriter is spending their time on something that will never actually happen.

The bottom line is that a clients best bet for confidence before writing an offer is the educated and experienced opinion of the front-line individual with whom they are directly speaking, Dominion Lending Centres Mortgage Broker. Although this individual will not be the same person that underwrites and formally approves the live transaction when the time comes, they likely have hundreds of files worth of experience behind them. That experience is valuable.

It is due to the disconnect between intake of application and actual lender underwriting a live file that having a ‘subject to receiving and approving satisfactory financing’ clause in the purchase sale agreement is so very important.

Without a doubt the most significant factor in recent years which has undermined clients preapprovals is the relentless pace of government changes in lending guidelines and policies. Change implemented not only by the Government also by the lenders themselves. It is very easy to have a pre-approval for a certain mortgage amount rendered meaningless just a few days later through changes to internal underwriting guidelines. Often these changes arrive with no warning and existing pre-approvals are not grandfathered.

So, while it is absolutely worthwhile going through the pre-approval process before writing offers, and in particular before listing your current property for sale it is most important to stay in constant contact with your Mortgage Broker during the shopping process.

Be aware that aside from the key advantage of catching small issues early and securing rates a pre-approval is NOT a 100 per cent guarantee of financing.

If more than four weeks pass then most of the documents are out of date by lender standards, and a fresh batch needs to be ordered and reviewed with the accepted offer. The conversion rate of pre-approvals to ‘live transactions’ is less than 10 per cent, and this alone prevents lenders from allocating resources to reviewing pre-approvals.

The question most often asked: ‘Is my mortgage portable?’

The answer most often given: ‘Yes.’

This answer is increasingly wrong.

In reality you qualify to move ~80% of the balance… maybe.

If you are thinking of:

• Moving (upsizing or downsizing)
• Locking a variable-rate mortgage into a fixed-rate product

… you would be well served to keep reading.

The above question is incomplete. To be fair, you would have no way of knowing this. The person answering it should know better than to give you a one-word answer.

The proper question: ‘Do I need to re-qualify for my current mortgage to move to a new home?’

The proper answer: ‘Yes, your mortgage is portable, but only if you re-qualify under today’s new and more stringent guidelines.’

The person answering the portability question should only be your Dominion Lending Centres mortgage specialist. They alone can answer the question accurately, and only with a complete and updated application, along with all supporting documents to confirm the maximum mortgage amount under current guidelines.

Too many clients learn this lesson the hard way. They sell their existing property before speaking with their Mortgage Broker, and in some cases they also enter binding purchase agreements under the mistaken assumption they can just port their mortgage.

Key Point – Do not ask if your mortgage is portable (99% of them are). Ask if you currently qualify to move your mortgage to a new property.

Key Point – The federal government has created a dynamic in which there are two different qualifying rates for mortgage approvals. And the one used yesterday to get you into a five-year fixed rate mortgage is not always the same one that is used if you want to move that same mortgage to a new home down the street, even just one day later.

Key Point – One day into your five-year fixed mortgage, you are now subject to the stress test. In a nutshell, the stress test applies the higher qualifying rate and effectively reduces your maximum mortgage approval by ~20%.

Meaning that you may only be able to port 80% of the current balance to another property… just one day later.

So, what’s the fix?

The best fix – The government could add a simple sentence to their lending guidelines along the lines of ‘If a borrower qualified for their mortgage at the five-year contract rate at inception, then the borrower shall be allowed to re-qualify at that original rate when moving their mortgage to a new home.’

Currently this fix does not exist.

The current fix – Well it’s no big deal at all. You simply pay a penalty to break your current five-year fixed mortgage and then apply for a new five-year fixed mortgage. Said penalty amount? Typically, around 4.5% of the mortgage balance – i.e., a $14,000 penalty on a $300,000 mortgage balance.

Seems reasonable, right?

It’s entirely unreasonable. This is a horrible ‘fix’, because it is not a fix at all. If you bought with 5% down, and then a few months later were transferred to another province and had no choice but to move, this represents your entire down payment vanishing due to an oversight by the federal regulators.

If you have been personally caught in this ‘portability trap,’ it felt more like total devastation than it did ‘anecdotal’. And by all means you should make your voice heard. Share your story with via www.tellyourmp.ca

DUSTAN WOODHOUSE

Dominion Lending Centres – Accredited Mortgage Professional
Dustan is part of DLC Canadian Mortgage Experts based in Coquitlam, BC.

Yesterday, Ottawa unveiled major initiatives to slow housing activity both by potentially discouraging foreign home purchases and, more importantly, by making it more difficult for Canadians to get mortgages. As well, the Finance Minister is limiting the degree to which mortgage lenders can buy portfolio insurance on mortgages with downpayments of 20% or more. Ottawa has clearly taken out the big guns to slow housing activity, which is widely considered to be too strong in Vancouver and Toronto. Ironically, home sales have already slowed precipitously in Vancouver in recent months and the BC government introduced a new 15% land transfer tax on foreign purchases of homes effective August 6, the effects of which are yet to be fully determined.

The measures announced by Finance Minister Morneau are more far reaching than anything considered to date and could well have quite a significant impact. Not only are these initiatives intended to close loopholes for foreign investors, which might help to make housing more affordable for domestic purchasers, but they will actually make homeownership less attainable for the marginal borrower, which is often younger Canadian first-time home buyers.

Officials at the Department of Finance have been studying the housing market and have led a working group with municipalities and provinces, as well as federal agencies such as the Office of the Superintendent of Financial Institutions (OSFI) and Canada Mortgage and Housing Corporation (CMHC). This in-depth analysis has informed today’s announcement.

 Measures Aimed At Foreign Homebuyers

• The income tax system provides a significant income tax benefit to homeowners disposing of their principal residence, in the form of an exemption from capital gains taxation.
• An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.
• The Canada Revenue Agency (CRA) will, for the first time, require all taxpayers to report the sale of a property for which the principal residence exemption is claimed.

Measures Affecting All Homebuyers

The Finance Department says in its press release that, “Protecting the long-term financial security of Canadians is a cornerstone of the Government of Canada’s efforts to help the middle class and those working hard to join it.” This is a “Nanny State” measure to protect people from themselves, as the Bank of Canada has long been concerned about the growing number of households with excessive debt-to-income ratios. It will make housing less attainable, at least in the short run. If it, therefore, substantially reduces housing demand, home prices could decline, ultimately improving affordability. This, of course, is not what the 70% of Canadian households that already own a home would like to see.

• Broadened Mortgage Rate Stress Tests: To help ensure new homeowners can afford their mortgages even when interest rates begin to rise, mortgage insurance rules require in some cases that lenders “stress test” a borrower’s ability to make their mortgage payments at a higher interest rate. Currently, this requirement only applies to a subset of insured mortgages with variable interest rates (or fixed interest rates with terms less than five years). Effective October 17, 2016, this requirement will apply to all insured mortgages, including fixed-rate mortgages with terms of five years and more.
• A buyer with less than 20% down will have to qualify at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. The Bank of Canada’s posted rate is typically higher than the contract mortgage rate most buyers actually pay. As of September 28, 2016, the Bank of Canada posted rate was 4.64%, compared to roughly 2% or so on variable rate mortgages.

For borrowers to qualify for mortgage insurance, their debt-servicing ratios must be no higher than the maximum allowable levels when calculated using the greater of the contract rate and the Bank of Canada posted rate. Lenders and mortgage insurers assess two key debt-servicing ratios to determine if a homebuyer qualifies for an insured mortgage:

• Gross Debt Service (GDS) ratio—the carrying costs of the home, including the mortgage payment and taxes and heating costs, relative to the homebuyer’s income;
• Total Debt Service (TDS) ratio—the carrying costs of the home and all other debt payments relative to the homebuyer’s income.

To qualify for mortgage insurance, a homebuyer must have a GDS ratio no greater than 39% and a TDS ratio no greater than 44%. Qualifying for a mortgage by applying the typically higher Bank of Canada posted rate when calculating a borrower’s GDS and TDS ratios serves as a “stress test” for homebuyers, providing new homebuyers a buffer to be able to continue servicing their debts even in a higher interest rate environment, or if faced with a reduction in household income.

The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later.

• Tighter Mortgage Insurance Rules

Lenders have the option to purchase mortgage insurance for homebuyers who make a down payment of at least 20% of the property purchase price, known as “low-ratio” insurance because the loan amounts are generally low in relation to the value of the home. There are two types of low-ratio mortgage insurance: transactional insurance on individual mortgages at the point of origination, typically paid for by the borrower, and portfolio (bulk pooled) insurance that is acquired after origination and typically paid for by the lender. The majority of low-ratio mortgage insurance is portfolio insurance.

Lender access to low-ratio insurance supports access to mortgage credit for some borrowers, but primarily supports lender access to mortgage funding through government-sponsored securitization programs.

Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:

1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
2. A maximum amortization length of 25 years;
3. A maximum property purchase price below $1,000,000 at the time the loan is approved;
4. For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
5. A minimum credit score of 600 at the time the loan is approved;
6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
7. A property that will be owner-occupied.

These tighter mortgage insurance regulations will reduce the supply of mortgages and/or increase their cost to the borrower.

Consultation on Lender Risk Sharing

The Government announced that it would launch a public consultation process this fall to seek information and feedback on how modifying the distribution of risk in the housing finance framework by introducing a modest level of lender risk sharing for government-backed insured mortgages could enhance the current system.

Canada’s system of 100% government-backed mortgage default insurance is unique compared to approaches in other countries. A lender risk sharing policy would aim to rebalance risk in the housing finance system so that lenders retain a meaningful, but manageable, level of exposure to mortgage default risk.

This proposal by CMHC has been floated for some time and, needless to say, the Canadian Bankers’ Association, is against it. The measure would certainly increase the risk associated with funding mortgages and therefore likely increase the capital required to be set aside against this additional risk. Therefore, in essence, it increases the cost to the lenders to finance mortgages. The lenders will undoubtedly attempt to pass off this increased cost to the borrower or reduce its supply of credit. Right now, the cost of mortgage insurance is borne by the taxpayer.

Bottom Line: These are very meaningful initiatives to slow housing demand, making it more difficult for Canadians to borrow. Finance Minister Morneau has taken out the big guns. I have no doubt that the pace of mortgage lending will slow from what it would otherwise be as a result of these government actions. However, these actions do nothing to address the shortage of housing supply in Vancouver and Toronto.

Housing has been a very important pillar for the Canadian economy, especially at a time when oil price declines have decimated the oil sector and manufacturing continues to struggle. This is a case of being very careful what we wish for– I’m concerned that we might see more of a slowdown in housing than the government was counting on, which will certainly affect jobs and growth and reduce tax revenues at a time when budget deficits are mounting and fiscal stimulus has yet to do its job.

The Minister of Finance announced on Monday new Canadian mortgage rules effective October 17,2016. The new rules will impact high ratio buyers – those with less than 20% down payment. Other rule changes are expected to follow so stay tuned for details as they unfold. The important thing to remember is that this is not the end of the world! Rather, it is the time when you really need the voice of reason from an experienced Dominion Lending Centres mortgage professional.

Currently a home buyer with less than 20% (high ratio) requires mortgage insurance through CMHC or one of the private insurers. The financing rules for this purchase differ from those buying a home with 20% or more down payment. However, both types of buyers have one rule in common – to access short term fixed rates (1-4 years) or a variable rate mortgage they must qualify at the benchmark rate (currently 4.64%). They don’t pay that rate, but it is a metric used to qualify for access to the variable or short term rate products.

Effective October 17th all high ratio buyers will have to qualify at the benchmark rate for all terms.

For example a home buyer currently qualified to purchase with 10% down for a mortgage of $527,000. After October 17th, this home buyer would qualify for a $420,000 mortgage. This equates to a 20% drop in buying power. (All things being equal in terms of property taxes, income, debts, etc).

Buyers in this situation would have the option to make up the shortfall with more money down or add another person to the mortgage to help qualify or purchase a lower priced property. For detached homes with a suite the use of rental income could help the buyer make up some or all of that difference in qualifying.

Any buyers with an accepted offer in place will have till October 16th to have a firm financing approval in place. Buyers who secure an accepted offer who do not have a firm agreement from their lender (and the respective mortgage insurer) in place by October 16th will be subject to the rule change October 17th.

This is crucial timing so talk with your realtor and Dominion Lending Centres mortgage professional in detail if you are ready to make an offer or have an accepted offer with no current financing in place.

There are no specific deadlines in place by the Minister of Finance regarding pre-sale purchases set to close in 2017. So discuss a strategy with your DLC mortgage broker and realtor if you are a buyer in this situation.

The announcement also indicated a change later this year to mortgages for conventional borrowers with financing that is bulk-insured. This represents a number of banks and other lenders who choose this as a strategy for their portfolio. This could impact all borrowers (those buying or refinancing). We will gain more details on this specific outcome within our industry channels and provide an update as soon as possible.

Note – when watching the news on this subject always remember to do your due diligence and consult with your professional mortgage broker. The media does not always get the details correct and can provide information that can be confusing.

To read the news release http://www.fin.gc.ca/n16/16-117-eng.asp

If you have any questions on your specific situation feel free to contact your local Dominion Lending Centres mortgage professional. We’re here to help you navigate these changing – and sometimes confusing – new mortgage rules.

PROS AND CONS OF COLLATERAL MORTGAGES

During the past couple of years the term “collateral mortgage” has gained a bit of a negative reputation, especially since TV shows like CBC’s Marketplace have taken notice. Marketplace felt it was worth doing a segment about collateral mortgages because the lenders offering this product were not disclosing the downside of this type of mortgage.

Collateral mortgages are designed to allow more flexibility in repayment terms and products secured by a residential property. Under the cap, or global limit, a borrower can have a regular mortgage, line of credit, a credit card and multiples of each of these products. When used for this purpose, collateral mortgages are excellent products that enable homeowners to attain cheaper interest, access higher limits and take advantage of splitting mortgages.

Collateral mortgages have been making news lately not because of these positives, however, but due to the negative ways lenders have been using them. When a regular conventional five-year mortgage (or any other term) comes due, or is up for renewal, the borrower can “switch” their mortgage to another lender at no cost. This type of mortgage is registered against the title of the property with the amortization outlined, so another lender simply pays out the other mortgage and continues on with the same amortization and balance as the previous lender had in place.

Under a collateral mortgage however, when the mortgage comes up for renewal, it would actually have to be discharged before another lender could take over the mortgage. This means a lawyer must discharge one mortgage and register a new one, which can result in fees ranging from $500 to $1,000. Not only would it be subject to legal fees, but all secured debt would have to be paid out with the mortgage, including secured credit cards and lines of credit.

Technically, this is considered a refinance and, according to the new federal guidelines, refinances are limited to 80 per cent of the property’s value. So, if the total amount being borrowed is greater than 80 per cent of the property’s value, it may be impossible to switch to another lender until either the debt is paid down or the home value increases. Some lenders have been using this as a retention tool, meaning that they place all of their clients in collateral mortgages knowing that, at the end of their term, it will cost them a significant sum to switch their mortgage to another lender – if it’s even possible to switch given the loan-to-value restrictions. This is why collateral mortgages have gained a bad reputation. Clients weren’t being notified that they couldn’t simply switch their mortgage to a new lender upon renewal.

In order to attain a full objective understanding of whether this type of mortgage is right for your client, be sure to consult with Dominion Lending Centres.  We have access to both collateral and standard mortgages.

1.  This is now the lowest prime rate we have seen since 2009.   There have been two prime rate reductions already this year.

2.  The banks don’t always respond and reduce their Bank Prime Rate.  They pocket the difference as a profit when they are borrowing money, so it’s common after a rate reduction for them to respond slower and in the most recent reduction they did not match the rate decrease in full.

3.  While rates have been at a historic low (or close to it) for the past several years, this does not generally impact your ability to qualify for a higher loan amount.   So far, there has been no change to the qualifying rate required to get a variable rate mortgage, which is more than double that of the rate you will actually receive. Variable rate qualification is based on a rate of 4.64%.  In terms of a payment reduction for existing mortgages, only expect an approx $4.00 per 100K. This provides an opportunity to optimize your mortgage by keeping your payment the same or increasing it.

4.  Fixed Rates are primarily based on the bond market and Variable Rates are tied to prime rate- whom you select as your mortgage consultant for life must have a plan for watching these indicators, while also putting together a long term mortgage strategy for you.

5.  If you have a Variable Rate Mortgage or Line of Credit, you don’t have to do anything to receive the rate reduction- the lenders will do it for you automatically once they have decided how they will choose to follow the BOC’s announcement.

Want to ensure you are getting the best rate AND mortgage for you and your family? Contact me at Dominion Lending Centres so we can review ALL your options.

If you’ve ever wondered how first-time buyers are affording ever-bigger down payments, BMO may have the answer: parental assistance.

BMO’s 2015 Home Buying Report found that 4 in 10 (42%) of first-time buyers are relying on their parents or other family members to pitch in for a down payment. And this reliance is increasing along with home prices. It’s up 12 percentage points from last year and 15 percentage points from 2013.

On average, first-time buyers now plan to spend $312,700 on their first dwelling. That’s 29% less than the national average home price and it reflects about a $1,400 a month payment with 5% down.

The average down payment for a first-time buyer is much higher than 5%, however. It now stands at $59,413, or 19% of the purchase price. That’s up from 16% in both 2014 and 2013.

Meanwhile, for rookie buyers needing family assistance for their purchase, they’re expecting parents or loved ones to pony up an average of 12% of the property value in equity.

But first-timers aren’t the only ones looking to family for help. Repeat buyers wanting to upsize are also increasingly relying on financial assistance from relatives – 42% of them to be exact. They expect their family to contribute a not-so-modest 20% of the property value in equity. Three cheers for generous parents.

As one might expect, these ‘upsizers’ are shopping with substantially higher budgets as well ($473,900), along with higher down payments ($123,214 on average, or 26%).

Other tidbits from BMO’s Home Buyer Report:

• 48% of first-time buyers are willing to enter into a bidding war to secure their dream home (up from 35% in 2014)
• 36% of upsizers are willing to enter a bidding war
• Without help from their family, an eye-opening 40% of first-time buyers and 50% of those wanting to upsize say they wouldn’t be able to afford their home.

We can’t help but wonder how future generations will fare if more parents are unprepared for retirement and unable to donate such large chunks to their children’s home-buying dreams. No one knows when this trend will turn, but if it does, it could have a measurable impact. Indeed, the parental assistance effect may be meaningfully underestimated in Canada’s housing market as it is.

Sidebar: Allen Cripps recommends buyers of all types stick to the “one-third” rule if they want to ensure they are living within their means. Simply put, total housing costs, such as mortgage payment, property taxes, heating costs, etc., shouldn’t consume more than one-third of one’s overall household income.

 April 29, 2015   Robert McLister  

One never stops learning in this business. The latest object lesson for us relates to the Benchmark Qualifying Rate, which is used to qualify variable- and 1- to 4-year fixed rate borrowers.

The Bank of Canada (BoC) explained how it was calculated back in 2010 (that story). But a few weeks ago the Benchmark rate inexplicably dropped from 4.74% to 4.64%.

The Benchmark, which is published every Thursday before noon, is supposed to be a mode average of the Big 6 banks’ posted 5-year fixed rates. Those rates are currently 4.49%, 4.64%, 4.64%, 4.74%, 4.74% and 4.79%.

A mode average measures the most frequent number(s). So given the dual modes in the above rates, and the fact that there can be only one Benchmark rate, one might expect the result to be 4.69% (an average of the two modes 4.64% and 4.74%). Instead, the BoC set the Benchmark at 4.64%.

Since the entire mortgage industry relies on this number, it seemed productive to ask why. Here’s what we found.

When there are multiple modes, “we do not always choose the lowest of the modes,” a BoC spokesperson told us. But “unfortunately, we cannot disclose the exact set of rules the Bank uses to calculate the typical rate.”

Okie dokie then. Scratch the idea of explaining it to clients and educating the industry.

“…The Bank cannot share the formula for how the rate is calculated because some of the guidelines are linked to certain data that we purchase and for which we have a confidentiality agreement with the provider.”

What data must be purchased is somewhat of a mystery. All the data the BoC needs for this calculation are directly on six bank websites.

Given the esoteric nature of this all, most are content to not question the Bank’s calculation. To us, it’s more the secrecy of it all that tickles our curiosity. Then again, if next time the BoC uses the higher of two modes, and that causes your mortgage application to be declined due to above-limit debt ratios, this obscure little calculation may hit closer to home.