Confused About Debt-Service Ratio for Mortgage Transfer - Help Please
We first went to ING Direct and discussed the transfer because they had a better variable rate than Bank A plus they had a targeted promotion that would give us $600 as a signing bonus. But after they crunched the numbers, they said we didn't qualify for the variable rate mortgage due to our debt-service ratio.
They'll give us a five-year fixed mortgage due to our equity in our home and our great credit rating. But that isn't what we really wanted. And by their rates at the point of our discussion, it was the difference between 2.75% and 3.39%.
I understand the concept of the debt-service ratio in that it's based on that BoC benchmark rate, which I think is 5.14% as of today. And I know that my husband and I -- both freelancers -- have had quite low incomes the past couple of years. Really, quite low. There's no point in explaining why, but thankfully this year has picked up. For ING Direct, they only look at last year alone (not even an average of the last three years) as the amount for last year was lower than the year prior. So they don't average them. But we also live *extremely* frugally and do fine. And we have zero debts other than the mortgage. But we, apparently, are WAY out on the debt-service ratio at 5.14%. Although we wouldn't be out if the debt-service ratio was being calculated on the *actual* rate we'd be signing for.
So here's my question -- when I went to look at that benchmark rate and an explanation, what I read was that institutions had to use the benchmark rate for the calculation of the debt-service ratio on variable and 1-4 year fixed mortgages IF the person was putting down less than 20% as a down payment. Now, in our case, seeing as it's a transfer, a down payment doesn't really apply. But shouldn't the large amount of equity in our home (far more than 20% more than the mortgage) fulfil that same purpose? Meaning that our equity is like we put down more than 20% and, thus, the 5.14% benchmark rate shouldn't apply when calculating the rate.
Does it make sense what I'm asking? I'd like an answer from an independent source, like here on RFD. Because, let's face it, ING Direct would benefit financially (due to the rate difference) from having us agree to the five-year fixed rather than the variable rate mortgage. So saying we're out on the debt-service ratio and that there's no flexibility could be seen as self-serving. Meaning that MAYBE -- I don't know for sure but maybe -- they could technically qualify us on their variable rate rather than the benchmark rate due to our equity in our home.
Anyway, could someone who knows about this area of debt-service ratio please comment? Does the high amount of equity in our home relative to the mortgage amount mean that the financial institution isn't actually obligated to use the benchmark rate for the debt-service ratio calculation? Or did I misunderstand what I read? Do they have any flexibility based on the equity in our home?