You can no longer ignore the monthly updates on Canadian interest rates trending higher. The predictions from government officials, economists, and real estate experts is the same, interest rates in Canada will continue to rise in 2022 and into 2023. As a home buyer or seller, how do interest rates affect your financial decisions?
Reza Sabour, a Vancouver-based senior mortgage advisor with Centum Financial Services LP, and Sung Lee states:
Interest rates for fixed mortgage holders started increasing in fall 2021. Now, with the BoC’s overnight rate increase in March and again in April, variable rate holders will notice their rates rise as well.
“For those individuals with a variable rate product with variable payments, they will see that increase,” said Lee. “Mind you, if you’re on a fixed-rate mortgage, you won’t notice anything, unless it comes to renewal time. That’s when you’re going to be hit with a higher rate than what you may have initially had.”
For home buyers looking to qualify for a mortgage, there are issues for both variable and fixed rate rates:
When mortgage rates go up, it tends to affect a borrower’s budget and how much mortgage they can qualify for, especially when we consider the stress test and the types of mortgage rates out there.
“For people about to get into the market, the important thing to understand is, if they’re going to go for a fixed-rate mortgage, their stress test has now gone up,” said Sabour. “So now we have a situation where the stress test is different for a variable rate borrower versus a fixed rate borrower, and that really hasn’t happened before.”
According to Sabour for every 0.25% the prime rate goes up, your payment increases by about $12 on every $100,000 of your mortgage.
Experts are not advising you take a pass on buying a home but for some useful advice along with practical tips, continue your reading.
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What You Should Know About Rising Interest Rates in Canada
