Canadians are looking to get mortgage pre-approvals and rate fixes before the low-interest era comes to an end, some economists predict.
Real estate and mortgage brokers say their clients are increasingly looking for ways to hold on to current interest rates as many housing markets like Toronto face hot conditions that make it difficult to keep purchase prices down.
“It’s a sellers’ market and you hardly have the opportunity to put conditions (on a purchase) because 400,000 people are waiting to be permanently resident, 200,000 of them are already here and there are buyers around the corner,” said Estee Zacks. the Toronto-based owner of Strategic Mortgage Solutions Inc.
“They feel weak, and statistically they are, so just try to get on your feet as much as you can.”
Zacks has recently seen a surge in requests for rate fixes that freeze mortgage rates for up to 130 days.
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Mortgage rates vary from bank to bank, but Ratehub.ca shows that the country’s top five banks offer five-year fixed-rate mortgages for as little as 2.62 percent and up to 2.94 percent.
Three-year fixed-rate mortgages vary between 2.49 and 3.49 percent, while five-year variable mortgages range between 1.40 and 1.75 percent.
The interest rate, which also weighs on homebuyers, has been at 0.25 percent since March 2020, but the Bank of Canada has hinted it could rise as the country continues to get out of the pandemic and relax restrictions.
An increase in both mortgage and interest rates would end a nearly two year period of lowest borrowing costs. However, the low prices didn’t do much to bring down housing costs.
The Canadian Real Estate Association announced that the national median home price was $ 686,650 in September, up 13.9 percent from $ 602,657 the previous year.
In Toronto it was even higher. The Toronto Real Estate Board said the average price of a home sold rose nearly 20 percent to nearly $ 1.2 million in October, from $ 968,535 in the same month last year.
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Price increases make these purchases even more expensive.
A one percent increase in mortgage rates from current levels will cost an average new buyer $ 230, or 12 percent more in additional monthly interest payments, Benjamin Tal, analyst with CIBC Capital Markets, wrote in a Nov. 4 announcement to investors .
“Potential buyers will face a higher interest payment curve, resulting in lower demand for new and existing units, potentially slowing the critical construction industry,” he wrote.
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“Current holders of floating rates may choose to leave their principal payments untouched and so absorb the full effects of higher interest rates – possibly at the expense of other expenses.”
If rates stay raised through 2025, he added that “massive borrowing during the pandemic will feel the full bite of higher rates”.
Vancouver real estate agent Tirajeh Mazaheri said buyers have noticed and are rushing to get pre-approved a mortgage to extend whatever type of relief they can.
Many, she said, spent much of the pandemic watching house prices closely and hoping they would go down, but have now accepted that this is unlikely to happen.
“People are scared and say if rates go up they’ll never be able to afford the city,” she said.
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“What we are seeing is that a lot of people are trying to use pre-approval or get a permit so they can get their hands on something and not miss out on low prices.”
Robert Kavcic, chief economist at BMO Capital Markets, doesn’t think these people have long periods of time.
He believes the Bank of Canada will likely hike rates faster and harder than most people expect, and he’s already seeing signs of rising mortgage rates.
In a November 3 notice to investors, he wrote, “Mortgage rates are already rising in the five-year term, but those on contracts will likely have a month or two to buy.”
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