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.
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.
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.”
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.
Patti is Zoocasa's Public Relations and Content Marketing Manager. Passionate about marketing and digital communication, she creates content to support Canadians throughout their real estate journey. Outside of Zoocasa, Patti can be found renovating her townhouse in Kitchener and exploring Waterloo region by foot or paddle.