Bank of Canada Interest Rate Increase

May Lead to Slower-paced Housing

Market

By Michael Dingwall

Business Edge News Magazine


In July of 2017, the Bank of Canada raised its interest rates for the first time in about seven years. Since that time, two increases have followed with the most recent on Jan. 17 of this year.

These three rate increases have caused lending institutions to follow suit and raise their mortgage rates. Canadian homebuyers can expect to see rates at least 1% higher than this time last year.

This is a far cry from the almost 20% interest rates seen in the 1980s. However, given that the average first-time homebuyer is roughly 30 years old, many are not old enough to remember the hardship of those times.

According to a recent Ipsos Reid survey, almost 48% of Canadians each month are less than $200 away from being financially insolvent. It is easy to see how even the smallest interest rate increase can lead to major financial hardship.

Let’s look at a sample scenario:

A couple in Calgary buys a single-family home and takes advantage of the ultra-low interest rates in December of 2017 for $520,000. With a 20% down payment they are left with a mortgage of $416,000. This leaves them with a monthly payment of about $1,760. Factoring in the recent Bank of Canada rate increases, their mortgage payment jumps up to $1,915, which translates to an extra $155 per month.

For this couple, that $200 buffer has now turned into $45. With the possibility of more rate increases on the horizon, the ability for new buyers to afford mortgage rate and home price increases will become increasingly difficult. Fallout from these circumstances could include a stall in housing prices.

The outlook is not entirely bleak. This could be an excellent time to enter the market for buyers and investors looking to get a good price on a new home. Whether buying, refinancing, or looking to invest, a mortgage associate can help find the mortgage to fit your needs.

(Michael Dingwall is a mortgage associate with Apex Mortgages. He can be reached at 403 804 4374 or mdingwall@mortgagesbyapex.com)