One of the big questions on everyone’s mind lately seems to be how to plan for the rising costs of living. What is the true economic outlook, where are interest rates headed, and should Canadians brace for impact sooner rather than later?
It’s no secret that everything from gas to groceries is costing more these days. In addition to budgeting for these daily necessities, housing affordability is also top of mind for those keeping an eye on market conditions as they plan to buy a place of their own in the near future. And for current homeowners, particularly those with mortgages that will be due for renewal in 2022 and 2023, a recent report “Annual State of the Residential Mortgage Market in Canada,” from Mortgage Professionals Canada (MPC) designed to interpret trends in the housing and mortgage markets, makes the following evident:
You can read the full consumer report here: Rapidly Evolving Expectations in the Housing Market
Bank of Canada Governor, Tiff Macklem, recently spoke about their decision on September 8th to leave the policy rate unchanged, and added even more insight to where things may be headed in his speech:
FACT: In response to the 2007–09 global financial crisis and again in 2020 during the COVID-19 pandemic, the Bank cut the policy interest rate to 0.25 percent to support the economy. With the rate at this level, the Bank temporarily set the deposit rate at the same level as the policy interest rate, resulting in an operating band of 0.25 percent to 0.50 percent.
With the above in mind, as Canada hopefully moves towards economic recovery, it’s important to understand the mechanics of how fixed and variable rates are set by lenders:
How are variable rates set? The chartered banks set the prime lending rate (the rate they offer their best customers). They base their decisions on the Bank of Canada’s overnight rate because that’s the rate that influences their own borrowing. Variable mortgage rates and lines of credit move in conjunction with the prime lending rate, with most lenders currently offering variables at prime minus a certain percentage. The Bank of Canada in their most recent announcement did not increase the overnight rate.
How are fixed rates set? Fixed-rate mortgages are a little different. Banks predominantly use Government of Canada bonds to raise money for fixed-rate mortgages. In the bond market, interest rates can fluctuate more often since they’re subject to the changing moods of traders and bond investors as they try to figure out how fast the economy will grow and where inflation is headed. That’s why you watch the bond market for clues on where fixed mortgage rates will go next. Oh and if you have a mortgage broker you work with already, make sure they are watching it for you too. If not consider finding one that does, like the team at Benchmark (hint, hint). Interested in learning more about bonds? Well, you’re in luck as back in March, we published a pretty cool post titled “Are Fixed Rates Skyrocketing” to help more people understand how bonds work and their impact on mortgage rates. Check it out right here.
Summary: Fixed and variable are not the only factors affecting rates. There are premiums to interest rates for certain situations i.e., rental properties, 25 vs. 30-year amortizations, etc. There are different rates for insured and uninsured mortgages. There are different kinds of lenders: big banks, small banks, and a wide range of non-bank lenders, each with different business models. Long story made short, there are many, many factors that can make mortgage rates confusing. Add to that any extra cost, risk, or lost opportunity for the lender, and those are passed along to consumers at a higher rate. That doesn’t mean that you need to worry or spend countless hours reading up on all the latest data. It just means getting an expert working with you is now more important than ever!
Our Edmonton-based mortgage broker team will help you understand the ongoing changes within the current economic climate and provide access to all the information you need to be well advised. To that end, here are answers to some of the questions we are getting:
- Should I jump into the market and buy a home now? Actually, our advice is always the same: purchase when you are financially ready. Don’t jump the gun just because rates “may” go higher. But by all means, if you’re thinking about buying, we can arrange a pre-approval so you’re protected from rate increases while you shop around. A Benchmark pre-approval includes verifying your income documents and your credit personally by a licensed professional to give you real confidence of what IS possible and what a lender will actually offer you. Rest assured – this process is free, and there is no obligation to use our services. You can start right now and fill out our quick and easy questionnaire. Get Started Here!
- What if my mortgage is coming up for renewal in 2022/2023? Don’t feel rushed or pressured by any letter or call from your current bank or lender offering an early renewal. Talk to us and let’s discuss it. We’ll review your options together and we’ll even shop around to see if it’s best to stay with your current mortgage or renew now to bypass waiting until next year in what could be a higher interest rate environment. Schedule a Call Now.
- What if I’ve acquired other debt? This may be the time to roll it into a new mortgage to boost cash flow and save on interest costs. In fact, you may have heard that Benchmark’s Second Chance Mortgage™ is back! It’s a good idea to have one of our Benchmark mortgage professionals check under the hood of your mortgage. Life doesn’t stand still, which means your mortgage needs may have changed.
Should we talk? Yes for sure. You’ll want to make sure that you are taking advantage of today’s attractive mortgage products. You should have confidence in your mortgage plan and that’s why professional mortgage advice is so critical. We have access to a wide range of lenders and know the right questions to ask to assess your situation and make sure you have the best mortgage strategy.
Source: Mortgage Professionals Canada
Source: Bank of Canada
About Mortgage Professionals Canada
Mortgage Professionals Canada is a non-profit, national mortgage industry association representing 11,500 individuals and 1,000 companies, including mortgage brokerages, lenders, insurers and industry service providers. Our members make up the largest and most respected network of mortgage professionals in the country.
Benchmark Mortgages Inc. is an Edmonton brokerage designed to establish meaningful long-term relationships with clients and help them achieve financial freedom faster with diverse and customized mortgage options. The term “benchmark” originates from the chiseled horizontal marks that surveyors made in stone structures as an established point of reference. By definition, it is a mark that serves as a standard by which others may be judged or measured.