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Mortgage Rates are Rising: How It May Impact You

Variable mortgage rates are sharply up. What does this mean for you? Read on to find out.

Rate increase

A Super-Sized Rate Hike

In July, the Bank of Canada raised the overnight lending rate by 1%. This represented the single most significant interest rate increase in almost 25 years. You’d have to go back to 1998 to see a similar rate increase.

Why did our central Bank raise interest rates by so much? It’s mostly about inflation. Inflation is at a near 40-year high in Canada. It’s well above the acceptable ban of 1%-3% for the Bank of Canada. Inflation is at close to 8%.

The Bank’s main tool for controlling inflation is raising interest rates. Our central bank doesn’t want high inflation to be a normal thing going forward. As such, it’s taking aggressive moves with interest rates to reign in inflation. Will it work? Only time will tell.




How Rising Rates are Impacting Mortgage Rates

If you have a fixed mortgage rate, this doesn’t impact you. Your mortgage rate and payment stay the same. It’s another story for those with an adjustable-rate mortgage.

If you have an adjustable-rate mortgage, a higher interest rate means more money coming out of your pockets every month. Not only that, but you’re also paying more in interest.

That’s for existing homeowners. What about those currently in the market for a home?

A Tougher Stress Test

Previously those who went with a variable rate mortgage only had to qualify at the stress test rate of 5.25%. However, a higher prime rate means a higher stress test rate.

You could see your purchasing power reduced by 7-8% thanks to the higher rate you must qualify at. Instead of qualifying at 5.25%, if you take a variable rate of 4.09%, you must qualify at 2% greater than that. That’s 6.09%. That’s the reason for the reduction in purchasing power.

What’s a Homebuyer to do?

The good news is that there are ways to counteract the higher stress test rate. You could, for example, have a parent co-sign. Another option is to go with a lender that doesn’t stress-test you. We’ll talk about this in greater detail in a future article.

The Bottom Line

Are you wondering how the higher mortgage rates impact you personally? Our mortgage experts can help. Reach out to us today.

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