- Before the period of low-interest rates comes to an end, Canadians are hurrying to acquire mortgage pre-approvals and rate holds.
- A recent spike in prospective buyers requesting rate holds from lenders has been spotted by Zacks.
Before the period of low-interest rates comes to an end, as some economists expect, Canadians are hurrying to acquire mortgage pre-approvals and rate holds.
Because many property markets, such as Toronto, are experiencing hot circumstances that make it difficult to bring purchase prices down, real estate and mortgage brokers say their clients are increasingly looking for strategies to lock in current rates.
“It’s a seller’s market, and you barely have the chance to put conditions (on a purchase) because 400,000 people are waiting for permanent residency, 200,000 of them are already here, and there are buyers lined up around the corner,” said Estee Zacks, owner of Strategic Mortgage Solutions Inc. in Toronto.
“They feel weak, and statistically, they are, so they’re simply trying to gain as much ground as possible.”
‘Surge in demand.’
A recent spike in prospective buyers requesting rate holds from lenders has been spotted by Zacks. As a result, rate freezes are available for up to 130 days.
Mortgage rates vary per bank, but according to Ratehub.ca, the top five banks in Canada are offering five-year fixed mortgages for as little as 2.62 per cent and as much as 2.94 per cent.
Three-year fixed mortgages are available in rates ranging from 2.49 to 3.49 per cent, while five-year variable mortgages are available in rates ranging from 1.40 to 1.75 per cent.
The interest rate, which affects homeowners, has been at 0.25 per cent since March 2020; however, the Bank of Canada has indicated that it may rise as the country emerges from the pandemic and restrictions are eased.
A rise in mortgages and interest rates would signal the end of an almost two-year period of ultra-low borrowing costs. Low-interest rates, on the other hand, haven’t done much to reduce home costs.
According to the Canadian Real Estate Association, the national average home price in September was $686,650, up 13.9 % from $602,657 the previous month.
It was significantly higher in Toronto. For example, the Toronto Real Estate Board indicated that the average price of a home sold in October increased by about 20% to nearly $1.2 million, up from $968,535 in the same month last year.
Increases in interest rates will make those purchases even more expensive.
Small hikes add up quickly.
In a note to investors on Nov. 4, CIBC Capital Markets analyst Benjamin Tal stated that a 1% increase in mortgage rates from present levels would cost an average fresh buyer $230, or 12% more in additional monthly interest charges.
“Potential buyers will confront a higher interest payment trajectory, maybe resulting in some slowing in the key building industry,” he said.
“Current variable rate holders may choose to leave their principal payments alone, absorbing the full impact of increased rates – may be at the expense of another spending.”
“The tremendous borrowing committed during the pandemic would suffer the full impact of higher rates,” he said if rates continue high until 2025.
Tirajeh Mazaheri, a Vancouver real estate broker, said purchasers have observed this and are hurrying to get pre-approved for a mortgage to gain any assistance they can.
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