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Understanding the effects of rising rates
After two years of record-breaking activity, extreme price increases and bidding wars, the housing market is starting to slow down to more normal levels largely due to the effects of rising rates.
According to a recent RBC report, the Bank of Canada’s rapid pace of rate increases has set the stage for a 12.6% drop in home sales across Canada between March and April. With Canada’s inflation rate hitting a 31-year high of 6.8% in April, experts are expecting the Bank of Canada to raise the key interest rate again next week on their upcoming announcement scheduled for June 1st.
Affordability is also affected by the rate increase, with borrowers facing a higher stress test qualifying rate and therefore a decrease in the amount they can qualify for when using traditional lenders such as banks. (The stress test is where you have to qualify for a mortgage using a higher interest rate than the rate you actually receive from the lender. It is either the contract rate plus 2%, or 5.25 per cent, whichever is greater).
Now more than ever, it is very important to have a Mortgage Alliance professional on your side. If you have any questions regarding the effects of rising rates on your mortgage, your mortgage payments or if you’re mortgage is renewing soon, please reach out to a Mortgage Alliance professional in your area. They will offer you the right advice and with access to many mortgage solutions from traditional and non-traditional lenders, they can help you navigate market changes and ensure you are still on track to achieve your short- and long- term financial goals.