Key Takeaways Montreal has experienced rapid growth in house prices for most residential categories from 2020-2022.The average sold price of a home in Montreal in March 2022 was $587,415, an increase of 14% year-over-year.Montreal’s sales-to-new listing ratio (SNLR) currently sits…
On the horizon is a potential increase in the BoC prime rate which will directly impact all variable-rate mortgages. Many are left wondering what this means for their household budget. In this nesto Quick Take, we’re going to provide tangible data on where the market stands and why homeowners and homebuyers alike shouldn’t be as worried about the news as they’re led to be.
With the anticipation of interest rate hikes top-of-mind in recent months, we’ve seen data that supports the overall uneasiness on mortgage decisions of potential buyers and homeowners alike.
- We’ve witnessed an increase in buyers opting for fixed-rate vs. variable rate. The former is up 20%* from the last two months; which shows clients are moving towards locking in the lowest rates in anticipation of hikes.
- There’s also a noticeable upward trend towards renewals with a noted decline in purchase mortgages. Showing that many are locking in low rates, but others are hesitant to purchase or at mercy of a lack of inventory.
The nesto Quick Take
While it’s normal in moments of uncertainty to go the safe route, we’re here to send the message that’s needed: to stay calm, stay informed.
- The interest rate in question for this hike is a variable rate, not a fixed rate. While many have been led to believe otherwise, leading to misconceptions and more worry, this difference should be noted for one key reason:
- While variable rates may increase through 2022, they are still significantly lower than fixed rates. It would take 6 interest rate hikes on the variable rate to reach where the current fixed rate stands at this moment – 2.4%.
- The sight of an interest rate hike is far scarier than the actual impact of such a move.
- For consideration: That’s a $12.36/$100,000 borrowed on mortgage (based on a 25 year amortization.)
- The truth is: most banks and salespeople will be pushing fixed interest rates to feed the fear frenzy and tell people what they think they want to hear, but mortgage planning comes down to strategy, and benefits are amplified when your rate type is variable. There are many parts involved that can help soften any market changes and maximize interest savings. It’s vital to speak with a trusted mortgage expert to determine which strategy fits your future (this is why we built nesto).
What’s next for homebuyers and homeowners
With that, there are several initiatives that any potential homebuyer or current homeowner can take now to reduce their nerves and find peace:
- See if breaking the mortgage early is smart. A fixed-rate mortgage “penalty” can change often, if it didn’t make sense last year, it could make sense this year to renew.
- Rebalance their household budget to anticipate and accommodate higher interest rates – Where can they cut back? Where can they prepay?
- Find ways to use their home to generate additional revenue – can they rent a room to a friend or relative?
- Pay down other forms of debt. With a focus on revolving consumer debt first.
- Shop around and talk with other lenders and brokers when it’s time to renew their mortgage. Bank and lender renewal rate is between 70-80%**, which means consumers miss out on thousands by thinking their bank gave them a good offer without getting a second opinion. (hint hint: Imagine an initial offer from your loyal bank that’s so high that you can negotiate for only a minute to get it lowered. That’s happening to Canadians today. The second opinion can only give you savings or confidence.)
Resources to consider to better prepare for 2022 interest rate hikes:
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For questions about nesto’s offers, contact the team here.
*nesto internal data
**Annual report from major banks and lenders
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