How Inflation and Interest Rate Hikes are Changing Buyer Behavior

Wondering what’s next for interest rates preceding the June 1st announcement? Not so sure about the steps to take to prepare yourself? Today, we sat down and chatted with Serge, Mortgage Development Manager, and had him answer some of the most commonly asked questions we’re seeing in the mortgage industry. Read on, and let us help you worry a little less!

Key Takeaways

• The Bank of Canada interest rate announcement is expected to raise the prime rate by another 0.50%. 
• New purchases are on the decline; early renewals are on the rise. 
• Serge says there are many unknowns for the mortgage industry forecast through summer 2022, but there’s hope things will stabilize in time.

Interview

Q: Okay, let’s start with the big question on everyone’s mind:  The Bank of Canada is preparing for another rate hike announcement on 6/1. What do you think that outcome will be? 

A: We are expecting another .50% increase and possibly another .50% by the end of the year, bringing the prime rate to 2% by the end of the year.

Q: In terms of these BoC rate hikes and the current pace of inflation, what are some suggestions you can offer anyone who is currently in the market to renew or buy? 

A: A Mortgage has always been one of the biggest investments in someone’s life. With the economic uncertainty, it is even more important to focus on the strategy. Fixed and Variable offers different pros and cons depending on your situation. Yes, a variable rate is more volatile than a fixed rate, and, historically, it has always been lower. Additionally, it offers a lower payment and lower penalty.  

Tip: Secure your low rate with nesto’s 150-day rate protection period. 

Q: In our recent nesto meter, which is our monthly mortgage industry report, we noticed that there’s a downward trend in new purchases and an increase in renewals. Why do you think that’s the case? 

A: People are nervous about what is going to happen. They prefer the status quo and wait to see where things will go rather than buying a bigger house and consequently increasing their liabilities, considering the real estate market.

Q: You and I both know that the earlier you secure your interest rate, the better off you’ll be. Can you walk me through, in a tangible way, how that is so anyone reading this can know too?

A: The best rates are often offered with a 120-day rate freeze period. If your mortgage term is up for renewal on November 15th, 2022, technically, you could freeze your renewal rate as early as July 18th. The same applies for a purchase or refinance. 

If you renew before your term is up for renewal, fees for pre-payment may apply. Don’t be afraid of the terminology; in some cases, it’s worth paying the penalty and starting with a new rate, which can lower your payments and save you money. 

Don’t be fooled by your current lender trying to renew your mortgage 6 months prior; they may be trying to renew with no competition in the way. Compare and ask a mortgage professional.

Q: As we look towards summer 2022, do you have any insights on how the market may look from an expert perspective?

A: Still a lot of uncertainty, but everyone is hoping for the real estate market to stabilize, and the same for the interest rate. Fixed rate should stabilize or have minimal variation. Variables will see other hikes but will remain lower than the current fixed rates. Many initiatives are being discussed by the government and the industry on how to help home buyers, especially the young and first-time home buyers. The reality of the market and the economy, along with the current rules in place for mortgage qualification, are impacting them the most, and we are hoping solutions will be provided to help them.  

If you’re ready to find your low rate and lock it in for 150 days, speak to a nesto mortgage expert today!