Ever since July, the Bank of Canada is raising the overnight lending rate, starting with an increase of 1%. Though in its September update, the rate was kept maintained at 5%. This rate affects the interest you pay from lenders. The higher the overnight rate, the more interest you’ll pay.
For now, the mortgage payments would stay the same as they were. Homeowners and the broker community is still believing that this relief is short lived.
Why Are Interest Rates Rising?
The main reason behind a raise in interest rate is country wide inflation that’s approximately near its 40-year high of around 8%. To control inflation, Bank of Canada has to raise interest rates. Inflation shouldn’t move forward and must be controlled by any means, no matter how hard it goes on a common man’s savings.
How Rising Rates Impact Mortgage?
Rising mortgage rates don’t affect fixed mortgages as they come with a locked in interest rate that will remain same throughout the mortgage term with fixed repayments.
In case, you have a variable interest rate mortgage, you may be paying more in repayments every month, all thanks to the increasing interest rate.
How’s It Making An Impact?
Due to higher interest rate, the purchasing power has witnessed a visible reduction by 7-8%. Previously, when the variable rate was 4.09%, eligible homebuyers were qualified at 2% greater than that. That’s 6.09%.
Since the rate has increasing, the qualifying value has also increased and only a fewer homebuyers are eligible of countering the stress test rate.
What’s The Solution?
There’s a solution for everything. To mitigate the increased stress test rate can be mitigated, homebuyers can bring in parents to co-sign the document. Going with a lender that doesn’t stress-test you is an alternative.
For more details, feel free to talk to our experienced mortgage broker in Surrey.