Today the Bank of Canada increased overnight lending rate by 1% thus reducing Canadian’s borrowing power..The mortgage stress test was introduced in 2016 as a method to prevent Canadians from qualifying for larger mortgages during a period of unusually low interest rates..What about when rates are no longer unusually low?.In the last four months, borrowers have lost nearly 20% of their borrowing power when taking a fixed mortgage product due to rules implemented over four years ago..Today homeowners lost nearly 10% of their borrowing power due to the Bank of Canada increasing the overnight lending rate by 1%, the largest single-day increase in over 20 years..With costs careening out of control Canadians are now seeing the cost of their mortgages rising at an alarming rate..Today’s increase in the overnight lending rate will see banks increasing mortgage prime rates in the coming weeks and months. We will see floating rate mortgages or Home Equity Lines of Credit costs rise another $1000 annually per $100,000 owed..Fortunately, Alberta is well positioned to overcome these challenges with an average mortgage size over 30% smaller than Ontario or BC. as per CMHC/Equifax 2022 Q1 data..What today’s rate increase means for the market?.At this point, there is no questioning the fact that rising interest rates have begun to impact the borrowing power of home buyers. The “stress test” is beginning to force borrowers to consider between qualifying for larger mortgages with the uncertainty of variable rates or qualifying for less with the predictability of fixed rate mortgages..If rates continue to rise and mortgage applicants continually qualify for less it seems logical that the housing market could fall in sync..It will be interesting to see if policymakers begin to consider increasing maximum amortizations beyond 25/30 years to alleviate the rising cost of mortgages and offset the decline in borrowing power..Do you think these changes will weaken the Canadian housing market or is it too little too late?.Time will tell. .Guest columnist Keaton Kirkwood is a mortgage broker in Alberta
Today the Bank of Canada increased overnight lending rate by 1% thus reducing Canadian’s borrowing power..The mortgage stress test was introduced in 2016 as a method to prevent Canadians from qualifying for larger mortgages during a period of unusually low interest rates..What about when rates are no longer unusually low?.In the last four months, borrowers have lost nearly 20% of their borrowing power when taking a fixed mortgage product due to rules implemented over four years ago..Today homeowners lost nearly 10% of their borrowing power due to the Bank of Canada increasing the overnight lending rate by 1%, the largest single-day increase in over 20 years..With costs careening out of control Canadians are now seeing the cost of their mortgages rising at an alarming rate..Today’s increase in the overnight lending rate will see banks increasing mortgage prime rates in the coming weeks and months. We will see floating rate mortgages or Home Equity Lines of Credit costs rise another $1000 annually per $100,000 owed..Fortunately, Alberta is well positioned to overcome these challenges with an average mortgage size over 30% smaller than Ontario or BC. as per CMHC/Equifax 2022 Q1 data..What today’s rate increase means for the market?.At this point, there is no questioning the fact that rising interest rates have begun to impact the borrowing power of home buyers. The “stress test” is beginning to force borrowers to consider between qualifying for larger mortgages with the uncertainty of variable rates or qualifying for less with the predictability of fixed rate mortgages..If rates continue to rise and mortgage applicants continually qualify for less it seems logical that the housing market could fall in sync..It will be interesting to see if policymakers begin to consider increasing maximum amortizations beyond 25/30 years to alleviate the rising cost of mortgages and offset the decline in borrowing power..Do you think these changes will weaken the Canadian housing market or is it too little too late?.Time will tell. .Guest columnist Keaton Kirkwood is a mortgage broker in Alberta
