The real estate world was surprised in early June when the Bank of Canada raised interest rates another quarter point. All signs had been towards a holding pattern up until the announcement. But a robust jobs report in April, combined with our ever increasing spending and debt accumulation, led the central bank to this decision. And while we are all hoping that this is the last rate hike for a while, the next meeting on July 12th may hold another surprise for us.
What does this mean for the average homeowner with a mortgage?
- If you are a variable rate mortgage holder, it will cost you more to finance your mortgage
- If you have a low interest mortgage (ie like my son who purchased his home 2 years ago with an interest rate in the mid 2s) that is set for renewal in 1-2 years, interest rates may be higher when it is time to renew. So start making adjustments now. Pay down high interest debt. Reduce your discretionary spending.
If you are shopping for a home:
- Reconnect with your mortgage advisor to confirm that you are still approved for the amount you may have earlier qualified for
- Confirm how long your quoted rate is good for -- this may affect the timing of a purchase and/or closing date
- Discuss what actions you can take with your mortgage advisor to get the best possible rate
- Determine how much you have available for a down-payment and whether or not you can reach the magic 20% so as not to have to get CMHC insurance
- Consider a 30 year mortgage (must have the 20% down to qualify for such)
- Ask your realtor if the house you are interested has the possibility of an assumed mortgage
If you are selling your home:
- Discuss with your mortgage advisor if you can port your existing mortgage to a new property
- Know that your home may take a little longer to sell as buyers adjust to the new restrictions on their funds
- Understand that this market comes with conditions in offers, especially that of financing
- It is more important than ever that your home is presented in the best possible light to have an advantage over other properties a buyer is considering. Any work that needs to be done by a buyer takes away from their available funds.
None of this is impossible. We are not living in the days of my parents with their double digit mortgage rates, thank goodness. But as the gap between wages and housing prices continues to widen, this increase in rates will shrink the market of buyers. So be sure that you have everything lined up, buyer or seller, to know exactly where you stand in this volatile market, using all the professionals around you -- realtor, mortgage advisor and lawyer.
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