Well, it’s official now. The Bank of Canada (BoC) finally increased their interest rate by 0.25%. It went from 0.50% to 0.75%.
There are many speculations as to why BoC did this. Some say it is to follow the feds, some say it is to protect the Canadian dollar, some will say it is to slow the real estate market. Whichever angle you’re looking at this from, the changes are here to stay and I want to give you an idea of how exactly it will impact the real estate market.
I know a lot of people freak out over news like this but let me reassure you that the world will not implode despite what you read in the media. Below is a nice little table I put together for you to see what kind of impact the interest rate hike may have on you.
*Numbers above based on current mortgage rates over 25 years
Everyone get ready, load up those Brinks security trucks because the interest rate hike is going to kill us… said no savvy investor ever. Your average Canadian is carrying a mortgage somewhere between $500K to $750K (keep in mind, this is your mortgage and does not include your down payment).
So even at the higher end of the scale, individuals with a mortgage of $750K (i.e., for houses valued at around $950K) will see an increase of about $100 per month. Something tells me that a person who is carrying a house that is almost worth one million dollars will likely not freak out over $100 more per month. If you are carrying a single personal condo, you’re really only looking at around $40/month difference. So please keep calm and carry on. Nothing to freak out about here.
Also, let me point out some things for you that everyone seems to forget. If you bought a house in the last 3-4 years, your mortgage broker may have recommended for you to get a fixed interest rate on your mortgage. This means that this current rate increase doesn’t even affect you. This ONLY affects you if you have a variable interest rate mortgage.
There will probably be some “added” cooling to the market as with any breaking news that affects the real estate market. However, I do not see this even coming close to making a big impact. The only real difference this can make is in the coming months, and ONLY IF, the proposed new mortgage rules are implemented… but more on that next week (*spoiler alert)!
Until next time, Happy Real Estate-ing!