the Bank of Canada announced an increase in interest rates by 50 basis points. This is the second such increase this year, but it's not expected to be the last. As interest rates rise, so does the stress test qualifying rate for mortgages which is two percentage points higher than the actual rate of a mortgage.
What does this mean for buyers who are planning or have already secured pre-approval?
Because pre-approvals are valid for four months, even if you got a pre-approval at the end of 2021 or the beginning of this year, you can still buy a home this spring at your pre-approved, lower interest rate.
If you have been thinking about getting pre-approved for a mortgage, should consider doing so now. As interest rates are expected to continue rising, it will become more difficult to secure a larger mortgage in the coming months.
For each percentage point the interest rate increases, Canadians will qualify for an approximately 10% smaller mortgage, but there is still time to get pre-approved before rates are increased again. Getting pre-approved for a mortgage now lets you lock in your interest rate before they go up.
The inventory of new homes across Canada is increasing, while price growth is slowing.
Many people are hoping that rising interest rates will help to cool the housing market and thereby lower home prices. Prices in many Canadian cities have fallen month-over-month, following record highs in February 2022. As inventory is growing in many cities, analysts believe this could be leading to a more balanced market.
If you’re considering buying a home this spring, contact us to talk to an CondoGo agent and receive a free consultation.