its benchmark interest rate may be raised sooner than anticipated, a move which could make house purchases even more costly for potential buyers.
Now, with the end of an era of low interest rates just around the corner, Canadians are racing against the clock to secure mortgage rate holds and pre-approvals, according to some experts. According to real estate and mortgage brokers, with many housing markets facing heated conditions, a significant number of a clients are attempting to hold on to current rates as it becomes more difficult to keep purchase prices down.
“It’s a seller’s market and you barely have the opportunity to put conditions (on a purchase) because there are 400,000 people waiting for their permanent residency, 200,000 of them are already here and there’s buyers lined up around the corners,” Estee Zacks, the owner of Toronto-based Strategic Mortgage Solutions Inc., told the Financial Post. “They feel weak, and they are statistically, so they’re just trying to get a leg up as much as they can.”
She further noted that with Canada’s major lenders offering ultra-low rates on fixed mortgage deals, there has also been a surge in requests for rate holds, which locks a specific rate for up to 130 days. Currently, the interest rates offered by the big five banks in the country for five-year fixed mortgages range between 2.62 and 2.94 per cent, while for three-year fixed deals rates vary between 2.49 to 3.49 per cent.
However, with the country beginning to recover from the pandemic, the central bank is looking at the possibility of increasing the benchmark interest rate, which has sat at 0.25 per cent since March last year. This is expected to lead to an upward trend in mortgage rates, bringing a lengthy period of rock-bottom borrowing costs to an end.
According to CIBC Capital Markets analyst Benjamin Tal, a mere one per cent increase in home loan rates from their current levels could cost an average new home buyer 12 per cent or $230 more in additional interest payments each month.
“Potential buyers will face a higher interest payment trajectory, leading to reduced demand for new and existing units, potentially resulting in some slowing in the important construction industry,” he wrote in a 4 Nov. note to investors. “Current variable rate holders might choose to keep their principal payments untouched and thus will absorb the full impact of higher rates — potentially at the expense of other spending.”
