3 Things New Buyers do When Mortgage Rates Rise (and which one you should consider most)
Canadian Mortgage Trends reports that BMO, CIBC, RBC and the National Bank have increased their posted fixed rates at the onset of June. The remainder of Canada’s Big 6 banks are likely to follow suit. If the next Bank of Canada announcement increases the prime rate, variable rates will also rise accordingly. This leads prospective homeowners in British Columbia to ask, “What to Do When Mortgage Rates are High?”. Below is a breakdown of what generally unfolds, and one answer that you should take to heart (and to the bank).
Response 1 | Wait it Out
Why It’s a Bad Idea:
Reports from a national survey were released in response to rising mortgage rates. It seems that more than 66% of Canadians plan to wait until mortgage rates drop to purchase a home. This is a common reaction, but ultimately it does not work in your favor. When rates eventually get lower, that 66%+ of buyers will flood the market in hoards. This increased demand reduces supply and drives prices up. While you may save one (or a fraction of) a percentage point on your home loan, the supposed savings are balanced in the wrong direction by inflated home prices. It’s generally better to buy when demand is low and home prices are more affordable. Doing so can reduce your required down-payment, required monthly mortgage payments, and ultimately the long-term cost of the home. Let everyone else wait while you enjoy a larger inventory and lower market prices.
Response 2 | Race to the Banks
Why It’s a Bad Idea:
Conversely (to above) the other 33% of new buyers may rush to the banks to get a home loan before mortgage rates rise even higher. Not everyone has the luxury to wait and keep renting (BC rental prices are rising, after all). While these people have the right idea in getting a mortgage now, they make a mistake by going directly to the banks.
Take note of the introductory sentence of this article: “Canadian Mortgage Trends reports that BMO, CIBC, RBC and the National Bank have increased their posted fixed rates”. See how we highlighted the word “posted”? It shows that the Big 6 banks are increasing the publicly offered rates. There are available rates that you (and most other Canadian buyers) aren’t even aware of. These rates may not rise, and if they do, they won’t rise to the same levels of the advertised ones. This leads us to the next (and most wise) reaction to high mortgage rates.
Response 3 | Contact a Mortgage Broker
Why It’s a GREAT Idea:
The investigative few who searched “What to Do When Mortgage Rates are High” and found this article are on the right path. Aren’t you glad that you’re one of them!? When you work with a mortgage broker, you instantly increase your buyer power despite rising publicly-facing mortgage rates.
The right broker will increase your purchasing power by helping you qualify for first time buyer incentive programs that effectively reduce your down-payment requirements. They also have other options available, such as RRSP home buyer plans, first-time buyer tax credits, new housing rebates, or even green home programs. More importantly (for the sake of this article) is that an established broker will get you access to lower unadvertised fixed and variable rates. This is made possible due to the bulk discount rates that they get with the banks that come from years of bringing them clients/customers. These discounts are passed on to YOU. Alternatively, a broker can also connect you to private lenders who may offer more favorable home loan terms. View more on why mortgage brokers are necessary, especially during times of rising mortgage rates..
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