The Bank of Canada (BoC) announced its fifth interest rate increase of the year, raising rates by another 75 basis points. This follows its July announcement where the Bank announced an interest rate hike of 1 percentage point, the largest interest rate increase since August 1998. BoC also cautioned that interest rates will continue to rise in its most recent announcement stating: “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate.”
What to Expect When Qualifying for a Mortgage
The rate hike means that the prime lending rate at all financial institutions will increase by 75 basis points. Following the previous interest rate announcement, most prospective fixed-rate borrowers faced stress tests with rates around 7% and 6% for variable-rate borrowers.
This interest rate announcement further impacts the rate borrowers will be tested against. Financial experts suggest that Canadians shopping for a mortgage should weigh all their options and remember that borrowers will often qualify for more if they choose a variable rate instead of a fixed rate.
The Impact on Canadian Real Estate
BoC’s policy rate is now at 3.25% and experts are predicting that future increases will be smaller. Throughout this year, we’ve seen the market shift from what was primarily a seller’s market throughout the peak of the pandemic to many cities being in more balanced or buyers-market territory. “Rising interest rates put downward pressure on real estate markets. Following this rate increase announcement, we may see more cities transition to buyer’s markets” explains Lauren Haw, CEO and Broker of Record of Zoocasa. This means that buyers may have more negotiating power during their home search. If you’re planning to enter the market this fall, work with a local real estate agent to understand which markets will favour you in your home-buying journey.
- Read: Variable or Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising
A Reminder to Homeowners with Existing Variable-Rate Mortgages
Canadians with existing variable-rate mortgages will see their rate rise in line with this announcement and should work with their mortgage specialist to plan for further rate increases. If you’re a homeowner with a variable-rate mortgage, you can use our free mortgage calculator to determine what your new monthly payments will be. Some lenders offer fixed payments with variable-rate mortgages which can be a great option to help homeowners budget as interest rates continue to rise. If you already have a variable-rate mortgage, speak to your mortgage broker to learn if you can switch to fixed payments mid-term.
If you’re considering entering the real estate market this fall, our qualified agents can help you navigate changing interest rates and find your dream home. Download our free Buyer’s Guide and Seller’s Guide and contact us today!