Rate hike won’t take ‘too much steam’ out of Canada’s housing market, experts say
Global News
Experts say Canada's housing market will remain hot after an initial interest rate hike from the Bank of Canada, pointing to pent-up demand and low supply.
The Bank of Canada’s move to hike interest rates will make the prospect of homeownership more expensive for some house hunters, but experts say it won’t be enough to fully cool a Canadian housing market beset with strong demand and a historic “supply crunch.”
Major financial institutions are already taking note of the central bank’s decision to hike interest rates to 0.5 per cent on Wednesday, an increase of 25 basis points from the rock-bottom lows seen through much of the pandemic.
RBC and TD Bank moved to hike their prime lending rates to 2.7 per cent from 2.45 per cent effective March 3 in response to the Bank of Canada’s announcement. Other Canadian banks expected to follow suit.
Variable-rate mortgage holders will immediately feel the effect of the higher rates on their monthly payments.
The average $500,000 mortgage holder will pay an extra $58 per month as a result of the hike, according to Sung Lee, an expert with rate comparator Ratesdotca.
While he says most homebuyers who opted for the variable rate route were probably expecting and prepared for interest rate hikes — the federal banking regulator’s mortgage stress test was installed in 2018 as a safeguard for this — the past few months have seen prices rising across the board on food, gas and other life essentials.
As it stands, the qualifying rate for an uninsured mortgage, where borrowers have a down payment of 20 per cent or more, is their contract mortgage rate plus 200 basis points or 5.25 per cent, whichever is higher.
If the prospect of additional rate hikes is making paying down the mortgage increasingly worrying, homeowners can look at pivoting to a fixed rate for more security.
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