The Bank of Canada (BoC) announced its sixth interest rate of the year, raising rates by another 50 basis points. This follows its interest rate increase of 75 basis points just last month, but the interest rate hikes aren’t over yet according to the BoC; the press release mentions that we should expect another interest rate increase before the end of the year in an effort to curb inflation further, “Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the Governing Council expects that the policy interest rate will need to rise further.”
Rate Hikes are Already Impacting Canadian Home Owners & Buyers
Existing homeowners, those currently in the market, and anyone with a home equity line of credit (HELOC) have been patiently waiting for this announcement. More Canadians with variable-rate mortgages will now hit their trigger rate and trigger point, leading to larger monthly payments. “Anyone who has held a variable-rate mortgage since the rate increases began will be fatigued by the endless oversized rate hikes,” said James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. A homeowner that put down 10% on a $640,000 home with a 5-year variable rate of 4.25% amortized over 25 years currently has a monthly mortgage payment of $3,205. The 50-basis point increase means their variable mortgage rate will increase to 4.75%, causing their monthly payments to grow to $3,370. This works out to an additional $165 per month.
For prospective buyers, It’s likely that this interest rate increase will continue to put downward pressure on home prices across the country as individuals qualify for lower mortgage amounts with the stress test. For sellers who are still holding out for those record-high bids, we’re already seeing fewer new listings and low levels of inventory. The Toronto Regional Real Estate Board reported that this past September had the lowest number of new listings for the month of September since 2002. It’s important for sellers to work with a qualified, local real estate agent that understands their market and can price the home competitively for the changing market conditions.
The Ultimate Question: Should Homeowners Choose a Variable of Fixed Rate?
Whether your mortgage is up for renewal or you’re applying for a new mortgage, choosing between a variable or fixed rate can be a tough decision, but these four tips could help you decide. Each time interest rates increase, it becomes more difficult to qualify for certain rates because the stress test increases as well. Laird explains: “Anyone with less flexibility in their household budget should consider locking into a fixed rate. Anyone with flexible household finances might hang on to their variable-rate mortgage in anticipation of future declining rates that may be needed to stimulate the economy if we end up in a recession.”
If you’re unsure what you should do following the interest rate announcement, we’re here to help! We have qualified real estate agents across the country that can help you weigh your options and strategize if you’re planning to buy, sell or both. Download our free buyer’s and seller’s guides to get you started.
