Zoocasa
Real Estate Sold Prices
Calculator
Map
Property Trends & Insights
  • Blog Home
  • For Buyers
  • For Sellers
  • Real Estate News
  • Mortgage News in Canada
  • Free Guides (PDF)
  • Real Estate Infographics
  • Real Estate News
Zoocasa
Home Guest Posts

Should Home Buyers Worry About Rising Interest Rates?

Justin da Rosa by Justin da Rosa
February 26, 2018
in Guest Posts, Mortgages
3 min read
Rising interest rates
Share23
Tweet
Share
23 Shares

If you’re an aspiring first-time home buyer in Toronto, we get it: It seems like everything from government intervention, rising home prices, and increasing mortgage rates are conspiring against your jump into the housing market. While it’s true that it’s now harder to qualify and afford a home than perhaps it ever has been in the past – at least in Toronto – we’re here to tell you it’s not as bad as it may seem.

Sure, regulations are tight and there are no signs of loosening. And home prices have been on a seemingly endless trajectory.

However, it’s not as dire as it might seem. At least in terms of mortgage rates (yeah, that stress test and average Toronto home price are still tough pills to swallow).

Mortgage Rates: A Brief History

First, let’s talk about today’s mortgage rates. Sure, they’re on the rise; the Bank of Canada has made three increases to its overnight rate target three times over that period. It increased the rate from 0.5 per cent to 0.75 per cent July 12, 2017. Then, on September 6, the BoC acted once again by increasing the rate to 1 per cent. Most recently, at the end of January, the Bank increased its target by 25 basis points to 1.25 per cent.

Mortgage rates have correspondingly increased with each of those policy moves. Most recently, the best five-year fixed mortgage rate jumped from 2.79 per cent on Jan. 15 to 2.94 per cent a day later. Mere days after that it was up to 2.99 per cent, which is the current best five-year fixed rate mortgage rate offered in Toronto.

Are these increases really worth fretting about?

Let’s take a look back at some previous eras to put today’s mortgage rates into perspective.

Not your Parents’ Mortgage

You’ve heard stories that start something like this: “Back in my day our homes cost us next to nothing.”

While that may be true – the average Toronto home price sold for $90,203 in 1981, for example – buyers in that era paid much higher mortgage interest rates.

The Bank of Canada’s five-year fixed rate was priced at 21.75 per cent at its peak in August 1981.

Assuming a homebuyer paid the posted rate on the average home at the time, and was able to scrounge 20 per cent as a down payment, the monthly mortgage payment would have been $1,260 amortized over 25 years, according to Ratehub’s mortgage calculator.

You may be sitting there thinking, what an affordable mortgage! Sure, a $1,200 mortgage seems like next-to-nothing. In 2018, at least.

However, we haven’t considered inflation yet.

According to the Bank of Canada’s inflation calculator, that mortgage in 1981 would cost $3,181.62 per month in today’s dollars. Of course, 1981 was a long time ago. So, let’s look at a more recent example.

A Decade Ago

Back in 2008 (can you believe that’s already 10 years ago?) the average Toronto home sale price was $379,347. Not bad. The best discounted five-year mortgage rate, meanwhile, was 5.89%. So, what would it have cost to own a home back then?

According to Ratehub.ca’s mortgage calculator, it would have cost $1,922 per month (again, assuming a 20 per cent down payment amortized over 25 years) or $2,264 in today’s dollars.

Today’s Comparison

The average home sold in Toronto went for $736,783 in January, according to the Toronto Real Estate Board. Assuming, once again, 20 per cent down an average home would cost $2,786 per month at today’s best rate. That’s not an insignificant increase from 2008’s cost, admittedly.

But that just means buyers today will have to temper their expectations.

Perhaps a condo may be the right move. At an average selling price of $507,492, a typical Toronto condo could cost $1,919 per month at 2.99 per cent.

There are also plenty of properties available below that price in Toronto – a real estate agent can help you find more affordable pockets within the city.

For some, though, today’s reality may mean having to look outside the city.

Either way, if history shows us anything it’s that mortgage rates are still historically low and a little creativity and open-mindedness can still land you in a home of your dreams.

Previous Post

What Tenants Need to Know About the New Standard Lease in Ontario

Next Post

30-Part Housing Plan Revealed in BC Budget

Justin da Rosa

Justin da Rosa

Justin da Rosa is the Managing Editor of RateHub.ca, a website that compares mortgage rates, credit cards and deposit rates with the goal to empower Canadians to search smarter and save money.

Related Posts

Bank of Canada

Variable or Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising

August 17, 2022
Affordability

How to Budget for a Down Payment

July 18, 2022
Affordability

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

June 22, 2022

Blog Search

No Result
View All Result

Recent Articles

Variable or Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising

August 17, 2022

Sharp Housing Adjustment as Sales Continue to Drop: CREA

August 15, 2022

Hidden Gems for Sale in Markham under $700,000

August 12, 2022

Rent or Buy? Average Monthly Rental Prices vs. Monthly Mortgage Payments in the GTA

August 10, 2022

Variable or Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising

August 17, 2022

Sharp Housing Adjustment as Sales Continue to Drop: CREA

August 15, 2022

Hidden Gems for Sale in Markham under $700,000

August 12, 2022

Rent or Buy? Average Monthly Rental Prices vs. Monthly Mortgage Payments in the GTA

August 10, 2022

Should You Purchase a Home With an Open Floor Plan?

August 8, 2022

Condo Apartments Remain the Most Affordable and Second Most In-Demand Property Type in Toronto and GTA: TRREB

August 4, 2022

Newsletter Sign-up

Join a community of 130,000+ subscribers. Don't miss important real estate news, market data, and buying and selling tips.

Social Media

Featured Listings (Updated Weekly)

Hidden Gems for Sale in Markham under $700,000

August 12, 2022

The Most Expensive and Affordable Homes Sold in July in the GTA

July 29, 2022

The Most Viewed Homes in June 2022

July 22, 2022

Condos for Sale with Amenities in the GTA

July 11, 2022
first-time home buyer programs and rebates

About Zoocasa

Zoocasa.com is a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions.

Newsletter Sign-up

Join 130,000+ weekly subscribers. Don’t miss important real estate news, market data, and buying and selling tips: sign-up here.

Social Media

Zoocasa Tools

MLS Listings Canada
Search Sold Listings
iOS App
Android App
Find an Agent
Contact Us

  • Homes & Real Estate Properties
  • Terms of Use
  • Privacy Policy
  • Contact Us

© 2015 - 2022 Zoocasa Realty Inc., Brokerage

  • Blog Home
  • For Buyers
  • For Sellers
  • Real Estate News
  • Mortgage News in Canada
  • Free Guides (PDF)
  • Real Estate Infographics
  • Real Estate News
No Result
View All Result

© 2015 - 2022 Zoocasa Realty Inc., Brokerage