The Bank of Canada’s move to raise its overnight rate to 4.25% will further dampen Canadian housing markets, but it could signal the bottom is near..It will come at a price for holders of variable rate mortgages, as the bank’s increase pushes the prime rate to 6.45%..If lenders keep the same discount below prime rate for five-year closed insured variable rate mortgages of 1.20%, variable rates will increase to 5.25%. .For every 50-basis point increase, a homeowner with a variable-rate mortgage can expect to pay approximately $28 more per month per $100K of mortgage, said Victor Tran, a mortgage specialist at RatesDotCa. .“Previous rate hikes cooled the housing market significantly while rising rates pushed many homebuyers, including first time homebuyers and investors, to the sidelines to wait out the instability in the market,” says Tran. .“We may be seeing the bottom of the housing market trough before buyers begin to enter the market in spring of 2023.” .Tran said property values are likely to continue to slide throughout the rest of this year and into 2023, presenting opportunities for buyers who can handle higher mortgage rates. A handful of lenders lowered fixed rates by .25% last week, and more lenders are likely to follow in the coming days. .“Fixed rates are likely to experience another drop in the next two to three weeks if bond yields continue to slide," he said.."The spread between fixed and variable rates is thin enough now that fixed rates will make sense for most buyers.” .Dropping sales prices across the country have turned most markets into buyers’ territory, taking the rush to buy a home, which has been prevalent for more than two years, out of the purchasing decision, saidTran..“Buyers can now take time to shop around, submit offers with conditions and avoid bidding wars,” he said..“If you are looking for a home, this could be a moment to take advantage of.".On the other hand, for investors, higher mortgage rates mean that rent is not likely to cover your monthly costs, leading to low to negative cash flow. .“We are seeing investors waiting months to sell condos that previously would have been snapped up quickly," he said. .Every one’s financial situation and aversion to risk is different, so people should consult a trusted source when deciding to choose a fixed versus variable rate mortgage..“According to our data, interest in variable rates continues to fall from previous highs this year,” said Tran..“The volume of fixed-rate mortgage quotes surpassed those for variable-rate mortgage quotes by 19%..This is the second consecutive month in which fixed-rate mortgage quotes surpassed variable-rate mortgage quotes..A survey conducted by Leger for RatesDotCa in June said 27% of Canadian homeowners have a home equity line of credit (HELOC), and of those 50% carry outstanding balances. .“HELOC rates are typically prime plus .5% or prime plus 1%,” said Tran. ."The minimum payment required for HELOCs is interest-only.”.A 50-point hike means the new HELOC rate would be 6.95%, with an interest-only payment increasing to $285.62 per month, based on a $50,000 line of credit multiplied by the new rate over the course of a year, an increase of about $20.62 per month. .Based on the national average home price of $644,643 (according to the Canadian Real Estate Association) for a five-year variable-rate mortgage holder* with a rate of 4.75% would pay $3,109 in monthly mortgage payments, said Tran..“A 50-basis point increase means the rate will increase to 5.25% and $3,265 in monthly mortgage payments, an increase of $156. This variable rate mortgage holder will have seen a total increase of approximately $1,138 per month in mortgage payments since the Bank of Canada began hiking rates in March of this year. “.At the time of renewal, mortgage holders will likely see an increase of approximately 18% in monthly payments, says Tran .“And that is even though they have paid down a significant portion of the mortgage and may have a higher income,” he said..“According to Canada Mortgage and Housing Corporation and Equifax data, the average insured five-year fixed mortgage rate in 2017 was 3.06% and the average home price for Toronto was $442,639, which results in monthly mortgage payments of $1,792.”.He said the average insured five-year fixed-rate mortgage is 4.89%*, which would lead to an insured five-year fixed-rate monthly mortgage payment of $2,097, an increase of $305 per month. .*Calculations are approximate and are based on RATESDOTCA’s mortgage payment calculator. They assume a 15 % downpayment, 25-year or 20-year amortization, and no lump-sum pre-payments.
The Bank of Canada’s move to raise its overnight rate to 4.25% will further dampen Canadian housing markets, but it could signal the bottom is near..It will come at a price for holders of variable rate mortgages, as the bank’s increase pushes the prime rate to 6.45%..If lenders keep the same discount below prime rate for five-year closed insured variable rate mortgages of 1.20%, variable rates will increase to 5.25%. .For every 50-basis point increase, a homeowner with a variable-rate mortgage can expect to pay approximately $28 more per month per $100K of mortgage, said Victor Tran, a mortgage specialist at RatesDotCa. .“Previous rate hikes cooled the housing market significantly while rising rates pushed many homebuyers, including first time homebuyers and investors, to the sidelines to wait out the instability in the market,” says Tran. .“We may be seeing the bottom of the housing market trough before buyers begin to enter the market in spring of 2023.” .Tran said property values are likely to continue to slide throughout the rest of this year and into 2023, presenting opportunities for buyers who can handle higher mortgage rates. A handful of lenders lowered fixed rates by .25% last week, and more lenders are likely to follow in the coming days. .“Fixed rates are likely to experience another drop in the next two to three weeks if bond yields continue to slide," he said.."The spread between fixed and variable rates is thin enough now that fixed rates will make sense for most buyers.” .Dropping sales prices across the country have turned most markets into buyers’ territory, taking the rush to buy a home, which has been prevalent for more than two years, out of the purchasing decision, saidTran..“Buyers can now take time to shop around, submit offers with conditions and avoid bidding wars,” he said..“If you are looking for a home, this could be a moment to take advantage of.".On the other hand, for investors, higher mortgage rates mean that rent is not likely to cover your monthly costs, leading to low to negative cash flow. .“We are seeing investors waiting months to sell condos that previously would have been snapped up quickly," he said. .Every one’s financial situation and aversion to risk is different, so people should consult a trusted source when deciding to choose a fixed versus variable rate mortgage..“According to our data, interest in variable rates continues to fall from previous highs this year,” said Tran..“The volume of fixed-rate mortgage quotes surpassed those for variable-rate mortgage quotes by 19%..This is the second consecutive month in which fixed-rate mortgage quotes surpassed variable-rate mortgage quotes..A survey conducted by Leger for RatesDotCa in June said 27% of Canadian homeowners have a home equity line of credit (HELOC), and of those 50% carry outstanding balances. .“HELOC rates are typically prime plus .5% or prime plus 1%,” said Tran. ."The minimum payment required for HELOCs is interest-only.”.A 50-point hike means the new HELOC rate would be 6.95%, with an interest-only payment increasing to $285.62 per month, based on a $50,000 line of credit multiplied by the new rate over the course of a year, an increase of about $20.62 per month. .Based on the national average home price of $644,643 (according to the Canadian Real Estate Association) for a five-year variable-rate mortgage holder* with a rate of 4.75% would pay $3,109 in monthly mortgage payments, said Tran..“A 50-basis point increase means the rate will increase to 5.25% and $3,265 in monthly mortgage payments, an increase of $156. This variable rate mortgage holder will have seen a total increase of approximately $1,138 per month in mortgage payments since the Bank of Canada began hiking rates in March of this year. “.At the time of renewal, mortgage holders will likely see an increase of approximately 18% in monthly payments, says Tran .“And that is even though they have paid down a significant portion of the mortgage and may have a higher income,” he said..“According to Canada Mortgage and Housing Corporation and Equifax data, the average insured five-year fixed mortgage rate in 2017 was 3.06% and the average home price for Toronto was $442,639, which results in monthly mortgage payments of $1,792.”.He said the average insured five-year fixed-rate mortgage is 4.89%*, which would lead to an insured five-year fixed-rate monthly mortgage payment of $2,097, an increase of $305 per month. .*Calculations are approximate and are based on RATESDOTCA’s mortgage payment calculator. They assume a 15 % downpayment, 25-year or 20-year amortization, and no lump-sum pre-payments.
