The last 60 days have been a roller coaster ride for fixed mortgage rates. We have seen anywhere from a 60 – 80 basis point jump (0.6 – 0.8%) on the most popular 5 year fixed mortgage products offered today. Here is how you are affected as a home buyer or seller in today’s changing market.
Understanding Mortgage Rates
First let’s understand that these changes haven’t affected all mortgage interest rates. All variable rate and home equity line of credit (HELOC) mortgages are tied to the Bank of Canada’s floating prime rate which hasn’t changed in the last 3 years. The reason for the ongoing changes to fixed mortgages is because the interest rate is set by the movement in the Canadian Bond market. Over the last two months there has been increasing pressure which has resulted in gradual increases to the best mortgage rates offered.
As a Canadian looking to purchase a home in the near future you need to be kept aware of how quickly the market changes.
You can complete a mortgage pre-approval which effectively locks in your interest rate for the next 90 – 120 days while you are working on finding the perfect abode. This process effectively provides you with a maximum purchase price and a conditional rate hold giving you peace of mind for the duration of your home hunt.
This being said, the lender still needs to give final approval on the actual property you choose to purchase. A pre-approval is not a guarantee that you will get financing on a specific home. It’s a guarantee that if the lender likes the location and believes the appraised value of the home is present, then you’ll get the final approval.
How This Affects Sellers
If you are in the market to sell your property there are a number of ways these changes can affect you.
First of all, if you possess a rock bottom interest rate on your existing mortgage and your contract states that it is assumable – this will be a great selling feature. As interest rates rise your low interest rate will cause additional interest from potential buyers who can take over your low payment mortgage. It can also help as today’s new mortgage rules are making it harder for first time home buyers to qualify for higher interest rates, making the chances of closing a successful sale increase. Conversely, if your mortgage is not assumable then higher interest rates can cause the amount of buyers for homes in your price range to decrease.
The bottom line on the mortgage interest rate changes are that they do affect you regardless of whether you are buying or selling in the near future. The best defense is to keep your ear to the ground by working with your mortgage professional, complete a mortgage pre-approval or contract review, and then work on actively implementing your plan over the coming months to ensure you are not caught off guard by the frequent changes in the Canadian mortgage marketplace.
Selling your home the ComFree® way can add to your saving by helping you save thousands in commission. Learn how you can sell your home with our commission-free service at one of our free info sessions happening this fall!