Interest Rates Increases & How it Affects Purchasing Your Dream Property

The Bank of Canada has recently once again upped the interest rate by 1.5%. This will affect all types of loans including the amount you can get approved to purchase a property. The increase affects all types of loans including mortgages, lines of credit and credit cards to name a few examples.

If you are in the process of buying a new property or are thinking about it to do it in a short term; we would recommend that you go to a broker or a bank to get pre-approved and lock in a good interest rate and it is good for up to 3 months.

Normally this would not be that big of a change when interest rates are stable or going down however having a pre-approval will protect you from further increases which have happened since January and will continue to happen during the year in order to fight the high inflation rate currently affecting Canada and many other countries worldwide.

What is inflation? Inflation is the level at which consumer products cost more and the value of a currency goes down. Inflation is measured by Consumer Price Index (CPI). This past April the rate of inflation was 6.8% the highest it has been for over 30 years. The Bank of Canada has decided to keep inflation at 2% each year and one of the ways to archive that is by increasing the overnight rate (interest rate.)

Inflation is not necessarily a bad thing when it is controlled and increases gradually it helps to keep the economy strong by making costs predictable for both businesses and regular people, and it also increases wages to deal with the rising costs. However, when inflation is not controlled and goes up in a way that can’t be managed that’s when the economy can get in trouble and that is when inflation needs to be brought back down to a controllable level.

Getting a good rate is important since not only will it dictate how much you can borrow to purchase your dream property, but also the monthly payment of the mortgage. Even if you are a current homeowner but your term is about to expire soon or within a year or 2 this increase in interest rate will affect you when you have to renew your mortgage. The bank of Canada has broadcast that by 2025-2026 fixed loans will cost 4.5% while variable loans will cost 4.4%.

Keep in mind that when you apply for a mortgage the following things are considered when you get the interest rate approved:

Interest rates (overnight rate) banks borrow and lend from each other which is set by the Bank of Canada.
Your credit rating.
Application type (variable or fixed) term.
Term and length of the mortgage.

One important fact to know is that the Bank of Canada can change interest rates up to 8 times a year. In 2022 they will change all 8 times. The schedule of all dates both past and upcoming is listed below:

Wednesday, January 26^th,2022.
Wednesday, March 2^nd, 2022.
Wednesday, April 13^th, 2022.
Wednesday, June 1^st, 2022.
Wednesday, July 13^th, 2022.
Wednesday, September 7^th, 2022.
Wednesday, October 26^th, 2022.
Wednesday, December 7^th, 2022.

According to Robert Hogue, a senior economist with RBC (Royal Bank of Canada) has forecast that the rate can reach up to 1.75% by the end of 2023.

If you got any questions about this feel free to reach out to us on our social media pages or contact us and we would be happy to answer any questions. We can also help on any step of the buying or selling process as well as send you any listings based on the budget and what your mortgage was approved. The sooner you can get your dream house and be pre-approved the better it will be for your pocket.

Research websites:

https://www.cbc.ca/news/business/bank-of-canada-rate-decision-1.6473469

https://www.ctvnews.ca/business/how-interest-rate-hikes-could-affect-your-mortgage-payment-1.5762554

https://www.ctvnews.ca/business/what-does-the-interest-rate-hike-mean-for-canadians-looking-for-mortgage-adjustments-1.5861137