How the Bank of Canada's Third 2023 Interest Rate Hike Affects Canadian Real Estate

The anticipation was palpable as consumers and experts speculated on the Bank of Canada's latest interest rate announcement. With inflation hovering significantly above the Bank’s target of 2%, they have opted to raise the overnight lending rate to 5%.

Higher Rates Could Mean Adjusted Home Prices

An uptick in interest rates means a potential decrease in the amount Canadians can borrow for mortgages. Both buyers and sellers must be wary. Sellers should remain grounded in their pricing expectations, keeping in mind the recent rate changes when looking at similar properties that sold recently.

For those potential buyers who secured a lower rate with a prior mortgage pre-approval, they might be in an advantageous position. They could benefit from the combination of their locked-in lower rate and the possible drop in property prices due to rising interest rates. As James Laird, Co-CEO of Ratehub.ca and President of CanWise Financial puts it, “The rate hikes may depress home prices that saw a surge at the start of the year, potentially slowing transactions as summer progresses.” Remember, summer often sees a dip in real estate activity due to vacations, which often picks back up as autumn approaches.

Variable Rate Mortgage Holders, Take Note

A report from Ratehub.ca illustrates the impact of rate increases on variable mortgages. Consider a homeowner who acquired a property at the May national average of $729,044. With a 10% down payment and a 5-year variable rate of 5.80% spread across 25 years (leading to a total mortgage of $676,439), they would be making monthly payments of $4,248.

However, with a 25-basis point increase, their rate changes to 6.05%. This bumps up their monthly contribution to $4,348. This increase translates to an additional $1,200 per year in mortgage payments.

Thinking of Renewing Your Mortgage Soon?

More rate changes are on the horizon. Now might be the opportune time to lock in a rate with a different lender. As Laird advises, “If your mortgage renewal is approaching, securing a rate with a new lender could be prudent. If the rates soar later on, you may find it beneficial to transition to the new lender under the secured rate before its expiry.” Having another rate secured offers flexibility and potential savings at the time of renewal. Many lenders allow a penalty-free renewal up to 150 days before the maturity date. So, initiate those discussions sooner rather than later. To secure some of the best rates in Ontario visit nesto today.

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