The Bank of Canada raised interest rates, how will that effect you and the housing market?
Since the beginning of the year, we’ve all heard forecasts about the interest rates rising in Canada. Owing to the influx of events of impacting the global economy, we’ve all felt it’s impact on our wallets. As of Wednesday, June 1st, 2022, the Bank of Canada raised policy interest rates and experts are predicting interest rates to continue rising throughout the year.
With the uncertainty of how long inflation is going to last and the forecasted interest hikes, you may be wondering how this is going to impact you. Despite the current economy – don’t get discouraged, I’m here to guide you on what these interest hikes means for you.
Interest rates vs. mortgage rates
The rise of interest rates means the cost of borrowing from banks and financial institutions are going to rise as well. This will impact consumers because the rise of these costs means banks will increase their prime rate. Your mortgage rate is based on the bank’s prime rate, therefore as the prime rate goes up, so will the interest that you pay on your mortgage.
How will these increased interest rates impact homeowners?
In the last two years, interest rates were slashed to support the economy during the pandemic. As a consequence of slashed interest rates from 2020 – 2021, the already hot housing market in Canada got hotter. Prices for homes increased since low interest rates meant borrowers can handle larger mortgages.
Depending on when your mortgage term began or the next time you’re up for a mortgage renewal, these interest hikes may impact you differently. If you began or renewed your mortgage rate in the last two years, you’ll see the biggest difference in your interest rate whereas those who had renewed or began their mortgage before 2020 may not see too much of a difference.
How will these increased interest rates impact home buyers?
On the other hand, those who are looking to buy a home today will face the challenge of deciding between a variable or fixed mortgage rate. According to experts, the gap between a variable or fixed mortgage rate is closing. Which means, your decision should depend on your current financial situation.
What to consider when choosing between a fixed and variable interest rate
Variable-rate Mortgage
- – Generally more risky
- – Current interest rates for variable-rate mortgages in Canada’s major banks are between 2.5-3%
- – For those who are more comfortable with risk and increased interest payments
Fixed-rate Mortgage
- – More certainty about monthly payments
- – Current interest rates in Canada for fixed-rate mortgages are between 4.5-5%
- – For those who prefer a consistent principal and interest mortgage payment
Call Zoie Conforti Today!
Looking for a real estate agent that will be supportive and provide guidance during this uncertain time is crucial when it comes to buying or selling a home. Let me help you with the buying or selling process and together we can achieve your real estate goals! Give me a call today at 647.293.8773.
Real estate is in my blood! My entire life, I have been exposed to the intricacies and complexities of the real estate spectrum from resale and land development to pre-construction and closing. I not only can make your homeownership dreams come true, but I have the experience to get your home on the market and sold in no time!