I asked one of my most trusted friends and profoundly intelligent mortgage brokers, Keaton Kirkwood, to write a brief article about the effects of the Bank of Canada’s largest rate since 1998 and what clients can and should do about it.
In fact, his latest perspective on the ramifications of this latest increase and anticipated further increases was just reprinted by a major publication.
July 13, 2022 – Today’s increase reduced buying power by 10%.
Buying power has declined roughly 20% for fixed rates since Feb 2022.
Today’s increase will cost roughly $81 per $100,000 borrowed but only increase payments by $56 per month (for an amortized mortgage).
Variable Rate Mortgages will not see an increase in payments but Adjustable Rate Mortgages and Home Equity Lines of Credit will.
Suggestions for Concerned Homeowners About Rising Interest Rates
- Complete a personal budget to determine the total cost of housing you can afford (let us know if you need a tool for this)
- Work out at what interest rate you reach the limit of your maximum housing budget (we can help with this)
- Use this maximize allowable rate to determine if a fixed or floating rate option is best for you.
- Borrowers can consider increasing their amortization to reduce payments as well.
What The 100 Basis Point 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.
The flip side is that a slower market may be a great time for buyers to find value. Whether is a wider lot, a unique floorplan or a suited property its worth keeping your eyes open!
If you have concerns and don’t have Please contact Keaton Kirkwood at [email protected] and mention my name in the email subject line to ensure that you don’t get lost in the multitude of emails.