Will An Interest Rate Increase Affect Your Mortgage 'Eligibility'?
Monday Feb 14th, 2022
Everyone is asking me if an increase in the Bank of Canada interest rate will affect their 'eligibility' for a mortgage.
Interest rates in 2022 are definitely going to go up. The Bank of Canada will likely raise the interest rate, March 2nd, by 25 basis points to 0.50%. This would be the first of multiple interest rate hikes over the course of this year as a high level of inflation is at the core of the government's decision. Inflation has hit a high of nearly 5% and the optimum level is about 2%. The BOC won't shock us with a huge rise immediately, but will spread it over the rest of this year. Their goal? To make it more expensive (payments) to borrow, which typically cools buyer demand and helps drive inflaiton lower towards that 2% target. And naturally, with a rise in the interest rate, mortgage rates will begin to increase. Actually, some of the major Banks have already started the process.
We need to remember, though that currently, when you’re applying and pre-qualifying for a mortgage, your eligibility is already being tested, by all financial institutions, at an interest rate of 5.25%. And that is well above the current interest rate. It's also completely beyond any interest rate resulting from an increase of .25% or even .50%. If you qualify at the benchmark rate of 5.25%, a rise in the mortgage rate won’t affect your 'pre-approval. However, a rise in that mortgage rate could affect the amount of mortgage you’ll receive and the ultimate purchase price you can afford.
If you are thinking of buying a home, the wisest thing to do is apply now and get your rate held for the next 90 days. If you're a home owner and have a variable mortgage, now is the time to lock in your mortgage for the next 5 years, before the interest rate hike(s) take place.
If you want expert advice from a mortgage professional I, and many of my clients, completely trust and have successfully partnered with for many years, please let me know. I am very happy to refer you.
It’s not enough to get the best interest rate - you need a mortgage expert who will protect your financial interests now and for the long term.