03 May
Analysts have theorised that the mortgage landscape of Canada will be changing in the coming months because of the steady rise in lenders’ fixed rates and the potential of The Bank of Canada to further increase the benchmark rate. Because of the rock-bottom interest rates during the pandemic, the housing market of Canada caused buyers to rush to purchase homes as soon as possible.
However, because the increased demand for housing posed a severe risk to housing supply, the central bank signalled in January that it would be increasing their interest rates to control housing demands and in March, they implemented a quarter-point increase. In addition, it was also noted that the interest rates would be increased in the following months, if housing supply does not fulfil housing demands.
The end result is that borrowers will soon need to contend with higher mortgage costs irrespective of whether theirs is a fixed- or a variable-rate product, according to a leading figure in the Canadian mortgage industry. Leah Zlatkin, a licensed broker highlighted that the rising costs will likely be compounded by inflation, which has recently ballooned to levels not seen in over 30 years in Canada.
“For people who are looking to do a fixed-rate mortgage, qualifications are starting to get more challenging. For people doing a variable rate mortgage, we see rate hikes coming. I think it’s time to brace and get ready to pay a little bit more on your mortgage payments.” she said. Adding further “if it was mortgage payments along that we’re bracing for, [that’s] not such a big deal. But the fact is, inflation is getting a little crazy. We’ve got grocery prices, we’ve got gas prices, we’ve got all this stuff that’s going up.”.
In such circumstances, it is essential for borrowers to be extra careful and consider each factor thoroughly when strategizing themselves for the future and when they decide to take the plunge into the homebuying process. The housing market conditions are on their way to look a lot more different than they were a week ago.
“People need to think very seriously about what they’re doing and whether they can afford to take on a new mortgage, or whether they can afford to do the refinance they want to do before they start investing into it.” She spoke.
The mortgage stress test rules have been updated as well, potential buyers would face additional complexities because fixed rates are rising, and new buyers are required to tested at a rate of 5.25% or the contract rate plus 2% – whichever is higher.
