Increasing mortgage rates; be aware of all your options...
With the recent announcement of increased mortgage rates, I thought it would be appropriate to discuss how it might affect present and future homeowners.
Interest rates usually will stay low when the unemployment rate is high. When more jobs are created and the unemployment rate goes down, the interest rates will start going up which is what we are presently seeing. Although it is impossible to know how high the interest rates will go in the future, it is prudent to get informed and get a clear picture of all your options.
To stimulate the economy, the Bank of Canada has kept its key overnight rate at a historical low for over a year but is now expected to be raising lending rates in the coming months in order to bring the inflation pressure down in the financial system. The housing market has been extremely strong recently which was driven by a great number of homebuyers who were ready to pay a premium for homes in order to avoid the imminent rise in interest rates. According to an article from the Canadian Press, CIBC chief economist Avery Shenfeld believes that the rate increase could help dampen the house price inflation seen over the past several months.
Homeowners and people looking at purchasing a home in the next few months should consider the following points.
- If you are considering buying a house it is suggested to visit your financial institution and get a pre-approved mortgage. You will increase your negotiating and bargaining power by showing the prospective seller that you are serious and will allow you to better focus on homes that are right for you. Your financial institution can not only pre-approve your mortgage (under certain conditions) but can also guarantee a rate for a certain period of time usually around 90 days, protecting you against rate fluctuation and giving you peace of mind throughout the home-buying process.
- Consider Locking in variable rates. Although research shows that holding a variable rate mortgage is more cost effective than a fix mortgage over time (in 82% of the time), taking into account the currently record low interest rates, chances are that you might be better off locking-in your mortgage rate at this point. The decision to hold a fix or variable rate mortgage is a personal one and will depend on your financial situation and flexibility to handle higher monthly payments in the event of a rate increase.
- Re-negotiate your mortgage. If you are close to the end of your mortgage term, you might want to look at the cost of breaking your current mortgage. Every institution has different policies but you can enquire with your lender and see how much interest you would save by renegotiating with the best possible current rate.
In any case, now is time to meet with your lender and review your options so that you can still take advantage of the low interest rates before the looming changes in the housing market take place.
Andree
