With the rise in interest rates in the news this week I thought it would be great to share a quick blog post to clarify as you’re likely wondering what this means to me as a home-owner or future buyer.  The news outlets as you know love to create hype.

There are 4 key points to take note of with this news.

1. The actual cost of the interest rate increase.
2. Does it affect me?
3. Do I qualify for less?
4. Which rates are moving?

What’s missing from the news articles are which interest rates have increased….and that is the 5 year FIXED interest rate.  Fixed rates for example moved from 1.69% to 1.94% translates into a payment per $100K of $409 to $421 on a 25yr amortization.  $12/month/$100K.  The average mortgage in Canada is approximately $400K (which in case you’re wondering, requires $80K of pre-tax income) so on a mortgage of that size we are talking about $48/month for the average Canadian household.

If your mortgage is already in place then you don’t need to worry.

If you’re looking to renew or refinance it may matter, but that’s just a maybe.

Really the only people that this fixed interest rate increase effects are those of you that are currently shopping for a home.  If the mortgage that you’re looking at is $500K, because let’s face it our average here in the Lower Mainland is higher than that of the rest of Canada we are talking about $60/month more.  In order to qualify for that $500K you will have needed to have $100K in gross income or $6,000/month after tax.  This rate hike translates to 1% of your take home pay.  It’s something but it’s not going to break your bank – consider it one less Friday night Uber Eats delivery.

As you know, in Canada there is what is called the Stress Test and that Stress Test is either the posted rate of 4.79% or 2% above contract.  This stress test is put in place for this exact reason, to ensure that you can still afford the mortgage you secure should the rate ever increase to 4.79% or 2% above the contract.  So the short answer is “no” you’ll still qualify for the same mortgage you did before the rates started increasing.

As I mentioned above, it’s the 5-year FIXED rates that are moving.  These fixed rates follow the bond market, and the bond market was knocked down flat when the pandemic started in March of 2020.  The bond market is getting back on its feet but who knows how long it will stay standing.  Variable on the other hand is tied to the Bank of Canada who has said that they will be leaving rates alone into 2022 or even 2023.  The next Bank of Canada Prime Rate announcement is on March 10th.  Variable is a great place to be as per usual.

If you’ve contemplated ever getting into the market and are wondering what you might qualify for, let’s have a 30-minute Discovery call.  You might just be surprised that you can enter the real estate market sooner rather than later.