Interest Rates Are Rising
You’ve likely heard that the Bank of Canada has taken some aggressive steps to fight inflation. While this is an international problem, different nations are taking different approaches. Here in Canada, we’ve increased our baseline rate from the dirt cheap, practically free money rate of 0.25% that it has been sitting at since March 2020, twice to 0.5% and then to 1.0%. We aren’t yet at the 1.75% pre-pandemic rates, but there is a lot of speculation that we should see another rate hike soon (speculation says June!). So what does that mean for you?
First, there is little doubt that when you limit the purchasing power of every non-cash buyer in the country, housing prices will almost certainly decrease.
Although we already had signs of a cooling market prior to the first recent rate hike, we are seeing further evidence of this. However, these home value losses are proportional to the lack of affordability caused by interest rate hikes. Put in another way: while the home value may be lower, affordability has not improved - you just pay more in interest than you do to the principle of your mortgage; the logic is similar to when a tax is added to a purchase.
Second, if your mortgage renewal is coming up OR if you WERE thinking about buying or selling in the near future, you may be in a position to take significant advantage of this economic shift. This is where your mortgage broker comes in. If you get a mortgage application in prior to an expected rate hike, you can hold that rate for 90 days. If you don’t end up moving forward, that’s fine - there is no loss other than a bit of effort (ie. filling out a form and gathering some documents). The bonus here is that if you lock in now, you could take advantage of a softening market. Your rate is held, but the prices will likely continue to soften.
Get to know your mortgage expert
If you have questions between the different mortgage options, that’s what your trusted mortgage broker is there for: fixed vs variable, open vs closed - they can guide you to what works best for your personal situation and your own personal risk assessment.
Don’t be afraid to shop around. A mortgage broker is like a REALTOR - you want to make sure that the professional that you work with is working diligently on your behalf. We may all have access to the same data and information, but that doesn’t mean every professional fully utilizes strategies to their fullest extent. Just like your REALTOR advises you and negotiates contracts on your home, a mortgage broker has a duty to protect your interests and negotiates for the best rate among multiple lenders.
If you don’t already have a trusted mortgage broker and would like a few names of our trusted professionals, shoot me an email or schedule a strategy session with me by clicking the link below. We never take kickbacks from any professional so you know that we are only ever recommending people for the right reasons: trust, competency, and ethics.