Rising Mortgage Rates Don’t Spell Disaster
August 25, 2022 | Posted by: Keith Leighton
Rising Mortgage Rates Don’t Spell Disaster
While homeowners and home buyers are groaning about these higher mortgage rates, they’re not all bad. And in fact, if you look at them from a certain perspective, they may even be seen as a good thing.
Rates are still incredibly low
Yes, the 4.59 per cent is higher than the rates that have been offered over the past 2 years since covid. But remember November 2008? Rates on conventional five-year mortgages were sitting at 7 percent and many thought those rates were low! No, you won’t be able to get the hot deal on your mortgage that you would have say a year ago. But you can still get a pretty good one.
You have time to plan
Yes, oftentimes a small rate hike such as the 30 basis points we’re looking at on a 10-year-closed mortgage is indicative that rates are going to climb even higher. But use these small rate hikes as the clouds that gather in the sky just before a massive storm. Look at them, and make adjustments for the conditions ahead. Is now the time to switch to a fixed rate before rates go even higher? Do you need to refinance to make payments more affordable for you? Small rate hikes are an opportunity to plan for your mortgage, and make sure that you’ll be able to afford it if rates go even higher.
Rising mortgage rates don’t indicate trouble
Yes, they may spell a bit of trouble for your household budget, especially if you’ve strapped yourself so tightly that you now have no wiggle room. But bigger picture. Mortgage rates were only put down so low in the first place because the economy was struggling. In fact, all economies were struggling – a lot. Rates were lowered so that consumers would continue spending and our domestic economy would be kept afloat. Now those are no longer needed and banks can start raising their rates a bit. Higher rates sometimes mean a stronger economy, and stronger economies equal out to more incomes and more jobs.
The Bank of Canada (BoC) has increased their overnight rate by 2.25% since March. Their next scheduled rate announcement is on September 7th where they are expected to increase by another 0.50% to 0.75%. This would mean that prime will increase to 5.20% to 5.45%, which will be the highest since 2008. Fortunately, there is some good news. The banks believe that this will be the last of the rate increases from the BoC.
No Further Rate Increases Expected
Inflation is then expected to be under control by 2024, at which time we should be feeling the full effects of a recession. The BoC’s attention will be on stimulating the economy, which means that more rate cuts can be expected.
What Can We Expect From Fixed Mortgage Rates?
While the prime rate will likely increase by another 0.75% to 1.00% by the end of this year, this doesn’t mean that fixed mortgage rates will do the same. They are different animals, and there are times when they can even move in opposite directions.
Despite the 1.00% rate hike from the BoC on July 13th, downward pressure on fixed mortgage rates continued. This resulted in some lenders slashing their 5 year fixed rates by as much as 0.50%, the first cuts to fixed rates we saw all year.
If you have a fixed rate locked in, then you don’t need to be concerned about the change providing that your new purchase closes within the rate hold period. If your purchase closes after this date, then you’ll be subject to the qualifying rate at that time, which could reduce how much you are qualified for.
Conclusion
Yes, rates are increasing further, but the end is finally in sight. Rising rates will also mean a rising qualifying rate, which means that it will be even harder to purchase the home that you really want.
If you are shopping for a new home, or if you have a mortgage coming up for renewal, then it would be a good idea to reach out to us in advance so we can ensure that you’ll still qualify for the mortgage you need.
