2022 has already been tough on Canadians’ wallets, and recent economic data shows the pain is unlikely to end soon. Inflation continues to run hot, and on October 26 the Bank of Canada further raised its benchmark interest rate to try to bring it under control. The latest hike of 0.5% was the Bank’s sixth consecutive increase, and it will be passed onto variable-rate mortgage holders and Canadians looking to get a loan in the near future.
If the economic doom and gloom has you thinking that now is the wrong time for a property purchase, think again. It’s not all bad – in fact, high-interest-rate environments have important potential benefits for some buyers, even if they have to get a mortgage. Here are three reasons why you shouldn’t delay your plans to buy in the near future.
PRICES ARE FALLING
Yes, higher interest rates mean your interest payments will be higher, for a given principal size. However, when interest rates rise, house prices fall as demand is depressed. This means that if you can afford to get into the market now, you may catch a deal. The average home price was down 6.6% in September versus a year earlier, according to the Canadian Real Estate Association.
Lower home prices mean that you may not need that big mortgage after all. With a smaller principal you may be able to take a shorter amortization period, with a lower total interest payment than you would have made if you had taken longer to pay off a larger loan. With a smaller principal, you will also be in a great position when interest rates begin to fall.
BIG RATE INCREASES MAY BE TAPERING
The Bank of Canada signalled on October 26 that benchmark interest rates would continue to increase in the near future, however, there are positive signs on the inflation front, which may mean lower interest rates in the medium term. Slightly lower inflation in September was driven by lower fuel prices, which may pass through to lower prices of other goods. The Bank of Canada expects inflation to decline sharply in 2023, which would allow them to relax their tight monetary policy.
This is good news, particularly if you plan to take a variable-rate or short-term fixed-rate mortgage. While your interest payments may be high in the short term, falling inflation in the medium term may lower your payments. If your dream home is on the market now, is it worthwhile passing it up?
MORTGAGE BROKERS GIVE YOU OPTIONS, EVEN IN A TIGHT-MONEY ECONOMY
At a time of high interest rates, it’s more important than ever for you to shop around for a mortgage. A mortgage broker can help. With access to hundreds of products, a broker can ensure you get the best combination of rate and features possible. With the possibility that interest rates will fall over the medium term, we can help you tailor your loan so that you are in a position to benefit when that happens. Whether you’re convinced you want to get into the market this year, or just want to talk it over, reach out.