As we have seen the Bank of Canada raise interest rates once again, consumers are getting increasingly worried about the costs of facilitating their mortgages. While much of the focus is on existing mortgages, the bigger issue is the number of buyers who have fallen off the face of the earth since April as a result of the increasing interest rates. Who could blame buyers for that? Their mortgage payments are much higher now than they would have been for the same house in April, but that doesn’t really tell the full story… You see, the interest rate increases from the Bank of Canada are one component of a much bigger picture.
What buyers in this market need to be aware of is their overall debt load and what that means for them not only now but in the coming years. Most markets have dropped upwards of 22% since the first Bank of Canada rate announcement, which means the house you are purchasing is costing far less than it previously was. Unfortunately, because the interest rates have gone so quickly, buyers are getting blinded by the monthly payments instead of putting an emphasis on the fact that they are purchasing a home for much less. Think about it, do you think that interest rates will stay this high for the next 25 years? How about 15 years? How about 5 years? While nobody can give a definite answer, most economists and bankers don’t see the current interest rates staying at this level once our inflation rate comes down.
So, if you are considering buying a home, ask yourself these questions:
Would I prefer having an $800,000 mortgage or a $600,000 mortgage?
Do I think interest rates will come down over the next 5 years, or go up over the next 5 years?
Was I in a position to purchase a home in April?
Am I in a position to purchase a home right now?
The reality is your monthly payments right now are quite similar to that of someone who purchased a home at the peak of the market with a fixed interest rate. Now, all of the people who purchased a home with a fixed interest rate that was significantly lower are in a “good position” right now, but what will happen when their mortgage comes up for renewal? They will be paying the interest rates in the current market. On top of that, after the first five years of their mortgage, they will still owe more money on their home than someone who was to purchase a home today. This begs the question, why would any qualified buyer be hesitant to get a better deal?
I understand that most people are not the best when it comes to numbers, and our video below walks you through just how much you would actually be saving by purchasing in this market. Yes, the market has shifted and we have to be increasingly aware of what we are buying, as well as studying the markets, but by and large, qualified buyers should be strongly considering making a purchase in the near future, because when interest rates start going back down, they will be competing against all the buyers who are sitting on the sidelines and prices will once again shoot up.