With the Bank of Canada raising its interest rates yet again this past October, many are worried about the impact this will have on their mortgages. Many are concerned about the state of their current mortgages, the ability to obtain a new mortgage, what will happen at their mortgage renewal, and what this means to sell their homes. While those with savings accounts are seeing an unprecedented increase in earnings, the same cannot be said for those borrowing money. With higher costs for lenders, borrowers see higher costs in both interest rates and monthly payments. Here is what you need to know about how the latest interest rate hike can impact you and your Lawrence Park real estate.
It costs more to borrow money
With the rising interest rates, it is becoming more costly to borrow money. The same loan a homeowner would have taken out last year does not hold the same value this year and comes with a higher monthly payment. Essentially, homeowners are getting less for higher payments and interest. It costs more for a homeowner to borrow money because it costs the lenders more to borrow the money they lend. In turn, to cover their costs, the lenders must charge more from their customers to cover their overhead costs.
How the rate hike affects home buyers
The rising interest rates can severely impact home buyers by decreasing the amount of money they can borrow. More interest means higher payments, which, in turn, means less money that can be taken out with the loan. For those who cannot afford a massive monthly payment, this can severely damper buying their dream home. However, at the same time, increasing interest rates can have a positive effect on home buyers.
If the demand has been exceptionally high for Yonge and Eglinton real estate, rising interest rates could decrease the demand, allowing the home buyer easier access to purchasing the home they want without all the competition. Additionally, the sellers may be more accommodating with prices due to the lack of competition, allowing the buyer to get their dream home at a cost that fits the available mortgage.
How the rate hike affects renewing
Many homeowners have five-year mortgage plans that are coming up for renewal. Because of the interest hike, there is a lot of apprehension about the process. While it may be stressful to shop around for the best rate, homeowners should consider doing it to prevent being locked into a higher rate than necessary. Many will simply stick to their current lender to avoid any hassles with shopping around, despite the possibility of finding a better rate. At the time of renewal, they are likely to see increases of 18% on their monthly payments, regardless of how much they have paid down their mortgages or have better income.
Renewing early is an option but may come with financial penalties if the homeowner is switching lenders. However, it may be beneficial if they find another lender with a better rate on which they can capitalize. Changing their loan terms at renewal may also be helpful but could be considered risky. Opting for a shorter-term loan gives them more freedom to find a better rate sooner, but it also runs the risk of them ending up with a higher rate should there be another rate hike down the road.
How the rate hike affects home sellers
Despite the increase in mortgage interest rates, buyers still need to purchase new homes. That being said, sellers may not get the offers they were hoping for due to the increasing mortgage loan costs. Additionally, they will most likely get fewer offers due to the low competition among buyers. However, despite the current financial situation, it will not be impossible for them to sell their homes. However, they may need to provide a few extra concessions and not attempt as many counteroffers to be successful.
How the rate hike affects existing mortgages
Depending on the existing mortgages homeowners have, the rate hike can mean different things. There will be no change to the interest rate for fixed-rate mortgages because when the agreement was signed, it was for a constant rate. The situation is a little bit different if a homeowner has a variable-rate mortgage. The interest rate will change based on various factors. Those with this type of mortgage can expect changes in their rate to include increases based on the rate hike. Changes can be seen in a matter of weeks or days with this type of mortgage. While the homeowner’s monthly payment may not increase, their interest can, causing the length of the loan to increase. When it comes time to renew, this can result in higher monthly payments.
Locking in the lowest fixed rate
While the option is available, potential home buyers should consider locking in the lowest fixed rate before another rate hike can happen. However, this does not mean rushing into a purchase they will later regret. They should still take the time to carefully research and plan out their purchase to ensure it is the house in which they genuinely want to invest their money.
They should consider acting before interest rates rise again to ensure they get the lowest rate possible for their purchase. It is also an excellent time to try changing from a variable-rate mortgage to a fixed-rate mortgage to prevent further interest rate changes. If their current mortgage is up for renewal, it is time to find the best rate available and lock in on it instead of settling for whatever their current lender offers.
When you are ready to start the buying process on Lawrence Park real estate, rely on a seasoned agent who will match you with the perfect home and expertly guide you through the process. Trust Giulia Gallina to help you make your dreams come true.
