Mortgage Basics

How inflation and interest rate hikes are changing buyer behavior

How inflation and interest rate hikes are changing buyer behavior
Written by
  • nesto
| May 25, 2022
Reviewed, Jun 7, 2023

Table of contents

    Wondering what’s next for interest rates preceding the June 1st announcement? Not so sure 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

    • 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 on the rise. 
    • Serge says there’s a lot of unknowns for the mortgage industry forecast through summer 2022, but there’s hope things will stabilize in time.

    Are you a first-time buyer?


    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 end of year. Bringing the prime rate to 2% by end of 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: 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. Fix and Variable offers different pros and cons depending on your situation. Yes Variable is more volatile than fixed and notwithstanding the fact that historically speaking variable has always been lower, it also 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 increase in renewals. Why do you think that’s the case? 

    A: People are nervous about what is going to happen. They prefer 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 days 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. 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 fresh new rate, lowering your payments and saving 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 same for the interest rate. Fixed rate should stabilize or 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!

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