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Home Affordability

Sale Prices are Dipping but Interest Rates are Rising: Read About the Impact to Monthly Mortgage Payments (REPORT)

Patti Cosgarea by Patti Cosgarea
June 22, 2022
in Affordability, Bank of Canada, Buying a Home, Mortgages, Toronto Real Estate
Reading Time: 4 mins read
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The market is entering more balanced territory, meaning that buyers have negotiating power for the first time in almost two years. However, as mortgage rates continue to rise, many buyers are still on the fence about what they can really afford. To help prospective buyers understand what their monthly payments may look like if they bought today versus what they would’ve been before the interest rate hikes; Zoocasa has compared the most current, available data (today’s interest rates and May average prices) to February 2022 home prices and interest rates. 

  • Read: Four Tips for Buying a Home Following Bank of Canada’s Interest Rate Increase

February 2022 Monthly Payments Versus May 2022 Monthly Payments

In February 2022, the supply of active listings in the Toronto Region were low and prices were at an all-time high for the year thus far, leading buyers to compete in bidding wars regularly. But with two rate hikes from the Bank of Canada in the past 6 months affecting lending rates, many buyers are now apprehensive, even with inventories improving and prices softening in the GTA and across Ontario. Using the available May average prices and today’s average interest rate, we compared monthly payments to what they would’ve been if you purchased a home in February. 

Payments are also coming down depending on home type. Consider this scenario, in February 2022, the average fixed-rate mortgage rate was 3.02%. According to the Toronto Regional Real Estate Board, the average price of a townhouse home in the Greater Toronto Area (GTA) was $1,119,026. For a sale price of over $1,000,000, the minimum down payment required is 20%. Along with an amortization period of 25 years, the monthly mortgage payment would be $4,246.

  • Read: What Happened Last Time Interest Rates Rose: REPORT

In May 2022, the average price of a townhouse in the GTA was $958,558. The average fixed rate in June is 4.81%. If the buyer was to put down 20% in May, the monthly payments would be $3,560. Many buyers might be surprised to learn that even with higher interest rates, their monthly payments are going to be lower now versus the start of the year.  Even at a 10% down payment, monthly payments would be $4,129 which is lower than what it was in February. 

The Stress Test Will Determine How Much You Can Borrow

When considering affordability, it’s important to take into account that homebuyers applying for a mortgage will also be stress tested. James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender, explains: “Currently, fixed-rate mortgages are harder to qualify for than variable-rate mortgages. The homebuyer is stress tested using an additional two per cent above the actual fixed rate they get from the lender. The higher their contract rate, the higher the stress test will be.” 

  • Read: INFOGRAPHIC: How The New Stress Test Will Impact Home Buyer Affordability Across Canada

It’s currently easier to qualify for a variable-rate mortgage as the stress test rate is lower. This gives homebuyers some flexibility to qualify for more than what they would with a fixed-rate mortgage. Laird continued, “for homebuyers who want a fixed-rate mortgage but want to qualify for the maximum amount, they can start with a variable-rate mortgage to utilize the lower stress test rate and then choose to convert to a fixed rate (with the same lender) after closing without having to pass the higher fixed rate stress test. There is no penalty for doing this.”

Buyers can meet with a mortgage agent at any time to qualify for a mortgage and lock in that rate for up to 120 days, leading to time to shop around while potentially not being impacted by another Bank of Canada rate hike. The best way to determine what you can afford and what your monthly payments will be is to connect with a real estate agent. They will walk you through the most current available data as well as comparables in the area you are interested in so you can plan accordingly. 

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–

Methodology: Average prices were sourced from the Toronto Regional Real Estate Board and the Canadian Real Estate Association. Average 5-year fixed mortgage rates were sourced from Ratehub.ca and mortgage payments were calculated using Ratehub.ca’s mortgage payment calculator. 

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Patti Cosgarea

Patti Cosgarea

Patti Cosgarea is an accomplished public relations professional with a passion for digital communications and all things real estate. She dedicates her creative prowess to crafting compelling content that empowers and guides North Americans on their real estate journeys. With a keen eye for detail and a knack for storytelling, Patti ensures that Zoocasa's message resonates with its audience, whether it’s first-time home buyers or experienced investors, making complex real estate concepts accessible to all. Her love for real estate extends to her personal life. When she’s not analyzing Canadian and U.S. real estate data, you can find her wielding a hammer and paintbrush, renovating her townhouse in Kitchener. These DIY projects showcase her creativity and passion for design, learning as she goes to offer her insights to others working on transforming their house into a home. Patti’s real estate insights and articles have been published in BNN Bloomberg, CTV News, the Globe and Mail, and her interviews and quotes about current market conditions can be found on the National Post, Business in Vancouver, Global News and more.

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