How will the interest rate hikes affect you when buying a home?

How will the interest rate hikes affect you when buying a home

With recent increases in borrowing costs in Canada, it’s crucial for homebuyers to be aware of the potential implications. Sophie Goudreau is an experienced and award-winning real estate agent in Cornwall, SDG, and Eastern Ontario. She understands that changes in interest rates will usually have a significant impact on the housing market. Sophie can provide valuable insights into how these rising interest rates may affect you when you’re looking to buy a house in Cornwall. 

Why do interest rate hikes happen? 

You’re probably hearing the term “interest rate hikes” a lot these days. In this case, it refers to an increase in the benchmark interest rates set by the Bank of Canada. These rates influence the interest rates offered by lenders and play a crucial role in managing inflation and overall economic stability. When the Bank of Canada raises these rates, it’s usually in response to a strong economy, increased inflation, or to manage the risk of excessive borrowing and spending. 

How will increased interest rates impact your current or future mortgage? 

When the Bank of Canada increases the interest rates, this will typically lead to an increase in mortgage rates. As the cost of lending becomes more expensive for financial institutions, they pass on these costs to consumers in the form of higher interest rates on mortgages. As a result, homeowners can expect to see an increase in their mortgage payments; and, homebuyers may not be able to qualify for as large a mortgage as they could before. 

How will rising borrowing costs affect homebuyers in Cornwall and Eastern Ontario? 

Rising borrowing costs can have several effects on homebuyers in our region

1. Increased mortgage rates: Higher borrowing costs will directly impact the affordability of mortgages. Homebuyers will face higher interest rates, resulting in increased monthly mortgage payments and potentially reducing their purchasing power. Sophie strongly advises potential buyers to consider these changes when budgeting and assessing their affordability. 

2. Reduced housing affordability: With higher mortgage rates, some homebuyers may find it challenging to afford their desired property. This can lead to a decrease in demand, potentially stabilizing or slowing down price growth in the housing market. 

3. More cautious lending practices: Higher borrowing costs may also prompt banks and lenders to tighten their lending criteria. This could result in stricter mortgage approval processes, requiring homebuyers to demonstrate stronger creditworthiness and a higher down payment. Sophie recommends that you should consult with a mortgage professional to understand the specific lending conditions during this time and see how large of a mortgage you will be approved for before you start your house hunt. 

4. Opportunity for buyers in certain segments: While rising borrowing costs can pose challenges, they may also present opportunities for certain buyers. In a market with potentially decreased demand, buyers who are well-prepared and financially secure may find more negotiating power and the ability to secure a property in Cornwall at a better price. 

How can homebuyers navigate these changes effectively? 

To navigate the impact of rising borrowing costs successfully, Sophie recommends that homebuyers: 

1. Consult with a mortgage professional: Work with a knowledgeable mortgage professional who can help you understand the current lending conditions and guide you through the pre-approval process. They can help you determine your affordability in light of increased mortgage rates. 

2. Review your budget and adjust expectations: Revisit your budget and consider the potential impact of higher mortgage rates on your monthly payments. Adjust your expectations and be realistic about what you can afford in the current market. 

3. Explore fixed vs. variable rates: Understand the pros and cons of fixed and variable rate mortgages. Fixed rates provide stability and protection against further rate increases, while variable rates may offer lower initial rates but carry the risk of increasing with future rate hikes. 

4. Build a strong financial profile: Focus on improving your credit score and saving for a higher down payment. This can help you qualify for more favorable mortgage rates and increase your chances of approval in a stricter lending environment. 

Where will the real estate market head in 2023? 

Sophie predicted earlier this year and confirms now the same feedback: The real estate market has shifted away from the feverish competitive state we’ve seen in the past few years. This is largely due to the direction of the interest rates. If you’re looking to buy a home right now, you’re in luck because it’s a buyer’s market, which means home purchase offers are starting to come in with conditions added again; but, Sophie says that she still occasionally sees situations with multiple offers coming in. 

With the stabilization of mortgage rates, there is a high likelihood that housing prices will undergo a reversal. Many experts are optimistic about a housing market recovery in Canada during 2023. Notably, the local average price is higher than it was in 2022; but, there are fewer units sold, primarily due to fewer buyers qualifying and the reduced inventory plays a part in that, as well.  

What is Sophie’s advice for home buyers and sellers? 

For buyers, Sophie’s excited to say, “It’s your time to shine!” because the current market conditions present an excellent opportunity. Cash buyers, in particular, are in a favorable position. However, even if you require a mortgage, the decreased competition and adjusted prices still make for reasonable monthly payments compared to the period when rates were lower.  

If you’re thinking of selling your home in Cornwall, you might get a slightly lower price than you would have a year ago, but it’s important to remember that you will also pay less on the house you’re going to purchase. Sophie’s advice is to take advantage of the situation and make informed decisions based on personal preferences and family needs. Markets will always experience fluctuations, so it’s essential to prioritize your individual circumstances and goals. 

As borrowing costs continue to rise in Canada, it’s important for homebuyers in Cornwall, SDG, and Eastern Ontario to be well-informed about the potential implications. By understanding how these rising borrowing costs may impact mortgage rates, affordability, and lending practices, buyers can adapt their strategies and make informed decisions. Remember to seek guidance from professionals in the industry to navigate these changes effectively and achieve your homeownership goals. When you’re ready, contact Sophie Goudreau to start searching for your dream home. 

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