To ensure future affordability, a ‘stress test’ is applied. Mortgage applicants are approved based on a higher rate than the one that they would end up with. The basic idea is to protect mortgage holders. Rates may increase at the time of renewal and even a small increase could be unaffordable for some. The 'stress test' gives potential wiggle room and satisfies the banks (aka government) that the mortgage holder would be able to absorb a rate increase of a couple of points.
Canada’s 5 Year Benchmark Rate
As of July 22, 2019, it sits at 5.19%
The bank rates throughout 2019 have actually dropped, as banks compete to offer products to entice buyers to hold a mortgage with them over another. As of July 22, 2019, we have seen rates drop to the point where Canada's 5-year benchmark rate is the one being used for mortgage qualification since the current bank rate plus 2% is the lower of the two. So, even though you can get a great rate at this time, the banks must qualify you at a much higher rate of 5.14% (the rate as of July 22, 2019).
OSFI (Office of the Superintendent of Financial Institutions)
The regulatory changes (tightened mortgage rules and mandatory stress test), applies to federally regulated financial institutions, and not to private lenders. As such, we have seen a greater increase in private lender mortgages since these changes have occurred.