Look At The Big Picture

Written By:

Michael Klassen

Originally Published in HOMES – Greater Toronto’s Finest New Home Guide

When Mortgage Interest Rates Rise

The doom-and-gloomers are out in full force, reporting likely additional increases in Canadian interest rates. (On March 2, the Bank of Canada hiked its influential overnight rate target to 0.50 per cent from 0.25 per cent, where it has been since 2018). Their apparent object is to mine negativity and instill unnecessary fear. In fact, interest rates may rise further this year, but this hardly merits panic in the homebuying market. In fact, the increases are necessary to help control inflation, so it’s important to look at the big picture. First, some homeowners will come out ahead of the game when rates rise. Take a look at those who obtained a five-year fixed mortgage five years ago. The average interest rate was 4.64 per cent back then, and today it’s anywhere from 2.7 to 3.0 per cent. When they renew this year, even if rates increase, they’ll still be better off than their current rate.Then consider people who locked into a mortgage during the COVID lockdown. They probably settled for a rate between 1.5 and 2.5 per cent. When they go to renew within the next five years, they may have to pay a higher rate – but they also have five years of appreciation on their property, as well as five years of principal paydown. Those who purchase pre-construction homes or condos often earn equity even before they take possession. The thing is, we don’t know for sure what will happen. If the rates increase at a reasonable pace over the next few years, we’ll ease into the situation in a positive way. There won’t be a market crash, which happens when rates go up too quickly. And frankly, talk to previous generations of homebuyers who paid mortgage rates as high as 20 plus per cent when that happened back in the 1980s and 1990s. Most of these homeowners never dreamed they’d see single-digit rates again, and they’re astounded at how long our current low rates have been around. Even if rates go up two per cent over next year or two, we will still be at historically low rates.There is simply no need to panic when you read about rising interest rates in Canada. Look at the big picture, keep calm and carry on making one of the best lifestyle and financial investments of your life – real estate. 

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