In January, the Bank of Canada raised interest rates to 4.50%, the eighth increase in 10 months. Since then rates have held steady, with the Bank comfortable with the effect on inflation in that time. This gave prospective homebuyers the confidence to dip their toes back into the real estate market. Prior to the rate holds, many held off on their home buying plans due to heightened uncertainty throughout 2022 of how much a mortgage could actually end up costing them. Since the rate holds, home prices have steadily edged up.
However, inflation jumped to 4.4% in April despite expectations it would drop, a far cry from the Bank’s intended target of 2%. This has led to speculation that this week’s announcement could lead to a further interest rate hike in a bid to keep inflation in check. One of the major consequences of this will be mortgages becoming even more expensive for those with existing variable rates or those shopping for a rate.
- Read: The Bank of Canada’s Interest Rate Pause: Assessing Real Estate Prices Since last Year’s Hikes
With the very real possibility of rates increasing this week, buyers who are looking to buy a home this summer may be wondering what the best approach is when it comes to a mortgage. Here’s our expert advice.
Mortgage Pre-approved? You’re in Luck
If you’ve secured a mortgage pre-approval, you’re in a good position. Pre-approvals are generally valid for up to four months. If you have secured a rate recently, then you may still be able to buy a home this spring or summer at your locked in rate. Any further rate hikes will not affect you if you’ve locked into a fixed-rate mortgage, but it could come into play when it’s time you renew. Bear in mind that the interest on a variable rate mortgage will change as the prime rate of your lender changes.
Not Pre-approved? Get in Quickly
Buyers that have thought about getting a pre-approval but have not done so yet should still consider getting one as early as possible. While it is not a foregone conclusion that the Bank will hike interest rates this week, experts believe that there is a very strong chance of it happening before September. Getting a pre-approval secured at the earliest possible opportunity, if you’re planning to move this year, will help you secure a larger mortgage. As rates go up, your threshold for approval will come down.
As rates increase, Canadians will likely find that they qualify for a roughly 10% smaller mortgage each time. With rate announcements scheduled in July, September, October and December, there is still potential for interest rates to trend further upward, depending on inflation, so get your pre-approval sorted as early as possible, even if you miss the deadline for this week, could prove to save you a lot of money in the long run.
If you’re thinking about moving this summer, give us a call. Our qualified real estate agents are eager to discuss and help you meet your goals.
