With interest rates expected to rise in the United States this year, experts say it may be a matter of time before they inch up in Canada as well. Says a recent CBC article:
“A Canadian increase would likely follow an American rise in the rates and may not come until the third quarter. But by the end of the year, Canadians could be facing a 1.5 per cent benchmark rate (it’s currently at 1.0 per cent) and higher borrowing costs.”
We’ve previously run the numbers to show what an uptick in Canadian mortgage rates would mean for monthly payments and overall interest costs. For instance, borrowing $500,000 at 3 per cent would mean a monthly payment around $2,370, while 5 per cent would bump up the monthly payment to over $2,900.
Paying an extra $600 per month on your mortgage could certainly scare away some potential home-buyers, but any rise in interest rates is likely to be gradual. Remember, home-buyers still have options such as making biweekly instead of monthly payments (which saves on interest) or putting down a larger down payment (which also saves on interest but obviously isn’t an option for everyone).
Mortgage rates are currently low, but that doesn’t mean you should rush out to purchase a buy a home now before they potentially rise later this year. Some experts predict that an increase in interest rates could trigger a correction in housing prices.
Plus, buying real estate is a long-term play that needs to fit with your overall lifestyle and financial goals. If you need another year to decide where you’d like to put down roots or to settle into a new job and see what size mortgage you can realistically afford, it’s better to take that time than make a hasty decision that you’ll later regret. Or if you haven’t found the right property, definitely don’t be swayed by low rates. The interest rate is only one aspect of a mortgage, so you also need to consider things like prepayment penalties and portability. The lender offering the lowest rate may not be the right lender for you.
If your mortgage is up for renewal this year, then you’ll certainly want to talk to your mortgage broker about options for renewing. Many people let their mortgages renew at whatever rate their current lender offers, but with the potential for rates to increase, it’s a good idea to start comparison shopping early so you can lock in the rate you want instead of letting the clock run out and settling.