Canada’s housing market has escalated to record heights as the demand for homes witnesses an upward trend the past year. Unfortunately, the price that many current or future homeowners may have to pay could come in the form of increased interest rates.
The inflationary pressures due to demand and supply imbalances stem from the global pandemic that affects the Canadian housing market. According to data retrieved by the Canadian Real Estate Association (CREA), markets are currently pricing in between four and five interest rate increases over the remainder of 2022. So, how can you prepare for the hike in mortgage rates if you’re on the market for a new home?
Determine Your Mortgage Payments
Whether you’re hunting for a home or looking to refinance your mortgage, you can benefit from finding out your mortgage payments before the interest rates start to rise. If you determine your mortgage payments beforehand, you will better understand the loan’s cost and your next steps as a borrower.
The best way to determine your mortgage payments is by using a mortgage calculator. A good mortgage calculator is a one-stop resource that can help you factor in your home’s price, current mortgage rate, and other essential elements of a mortgage payment. Find a reliable house mortgage calculator Canada offers and leverage that tool during the purchase or refinancing process.
Lock in Your Current Rates
The boost in demand for housing led by the COVID-19 pandemic allowed homebuyers to invest in a home, while current homeowners got the opportunity to refinance their existing mortgages. Canada’s interest rates fell to historic lows during the first quarter of 2020.
A mortgage rate lock is an agreement between a borrower and lender which allows a borrower to secure the interest rate at the prevailing market rate for a specific period. Whether you’re purchasing a new home or renewing your mortgage, fixing the current rates will ensure that the rising rates will not impact your finances for a certain period. Locking in your mortgage rates while it is low will help you combat the rising rates in the future.
Lower Future Payment Shock
You can use the current market conditions to your advantage by planning out your future payments. When you’re aware of the potential rise in interest rates, preparing yourself for the higher costs can eliminate future payment shock. If you currently hold a mortgage, you might be saving some money due to the low mortgage rates right now. Keep those funds aside and save them for your future payments when the price may be higher.
You could also discuss your prepayment privileges with your mortgage company to artificially increase your payments in advance. A prepayment privilege allows you to increase your regular payments by a certain percentage and put money toward your payments without paying the penalty.
There is no way to control an increase in mortgage rates, so the best thing you can do is plan your finances accordingly. The ideal method of combatting higher mortgage rates in Canada is preparing for them ahead of time.