If you follow real estate closely, or even if you're a casual observer, you would know that since 2008 mortgage interest rates have been at historically (or perhaps even artificially) low levels, bottoming out at sub-2.5% (for a variable rate) and sub-3.0% (for a fixed rate). For some of you who may be looking to enter the real estate market for the first time, or bought your first home after 2008, you might not fully understand the advantage these low rates have on your purchase. And more importantly, what impact a higher (and more realistic) rate will have.
Let's take a look at the most recent increase - 2 weeks ago, a 5 year fixed rate was roughly 2.89%, today that same term of mortgage would be 3.49% (http://www.tdcanadatrust.com/products-services/banking/mortgages/numbers.jsp) - a modest 0.6% increase; no big deal, right? That increase only translates to roughly $30/month of interest for every $100,000 borrowed, or $1/day - no big deal indeed.
But let's say you're on the fence about buying that first or next home, and the low (but unsustainable) interest rates over the last 4 years have factored into your decision to hold off for another year to buy your next property - a decision many first-time and new home owners are contemplating. If Lawrence Yun, chief economist for the National Association of Realtors, prediction holds true and the mortgage interest rates increase as high as 5% in the next year, that extra $30/month of interest increases by almost 4 times to $114/month!! An extra $1,350 of interest annually, all because you waited 1 year - that's a week-long southern vacation or a new designer suit you could have bought instead of giving your bank more money. More so, if you currently had room in your monthly budget for an additional $114, and decided to buy today instead of waiting a year, that would enable you to increase your home hunting budget by approximately $30,000!! Still think it's no big deal?
No one has a crystal ball and no one can accurately predict the future of mortgage interest rates, but it doesn't take an economist to see that the interest rates can not remain at their current levels for much longer and many experts at Canada's big banks agree that over the next few years rates will continue to increase to more sustainable levels.
But one thing is for certain, mortgage rates will not drop any more than they have over the last 4 years - so if you're looking for a reason to step into the real estate market, it won't get much more affordable than it is now.
For more information about interest rates, real estate in Ottawa, or buying your first home or investment property, please don't hesitate to contact me.
Thanks for reading.
Taylor Bennett
Sales Representative - Bennett Pros
www.bennettpros.com
taylor@bennettpros.com
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