There have been rumbles that interest rates could start to rise later this year. Too soon? Some think so, as the world still reels – but slowly bounces back – from the deep impacts of Covid-19. Recovery mode here in Canada seems like a more distant reality, but rising mortgage rates could be more imminent than many had originally expected. In fact, the trend has already begun.
What Happened in 2020
Mortgage rates have been sitting at record-low levels since last march, when the Bank of Canada slashed its benchmark interest rate three times in just one month, to 0.25 per cent, as a stimulus effort. (In case you’re wondering, it worked as far as the Canadian housing market in concerned!) By the end of 2020, the Canadian economy grew 9.6 per cent, according to the latest figures from Statistics Canada – well above the Bank of Canada’s 4.8-per-cent growth forecast. Now, for the first time in more than a year, some lenders have started inching their rates upward. According to media reports, TD and National Bank of Canada have already increased the interest rates on some of their mortgage products.
No doubt, this has prompted a flood of mortgage applications as homebuyers scramble to lock in a one-point-something-per-cent mortgage rate, while they still can. In a pricey market like Toronto, even a one-per-cent increase in the mortgage rate can mean thousands more dollars paid in interest over the life of your mortgage.
Demand for housing in Toronto is nothing short of crazy, as buyers continue to pick the housing market clean, buying up anything and everything they can get their hands on. We’ve all seen the $1-million-plus shacks and wonder, “Who’s buying that?” But they are.
Economists and policy-makers hope that rising mortgage interest rates will help cool demand, slow the rate of sales and explosive price growth, and add more listings to the market.
Only time will tell how 2021 plays out. In the meantime, my best advice to homebuyers is to buy when you’re ready for the market, not when the market is ready for you. Save as much money as you can, build a solid down-payment and have a long-term plan. Eventually, you’ll find yourself in a post-pandemic world where mortgage rates are at more “normal” levels. And when the time comes to renew your mortgage, can you still afford it at a rate that’s one, two, three per cent higher?
My message is this: don’t spread yourself too thin. The pandemic has taught us some important lessons, including to have a back-up plan (translation: money in the bank) and expect the unexpected. On a side note, real estate continues to be a very lucrative investment in Canada, if you can afford to hold onto it for the long term. As always our team are here to help answer your questions.