Mortgage Applications Continue To Rise Despite Higher Rate and Increased Living Costs

If you are planning to buy a new residential property in Canada and have been doing some market research, you surely know that mortgage rates have surged by as much as 29.9%. And sadly, as Daniel Johanis, the owner of Pekoe Mortgages, says, there is seemingly no relief as mortgage costs would remain high until about 2026.

Why Are People Buying Homes Despite Rising Mortgage Rates?

According to reports, the number of mortgage applications did not minimize despite an increase in interest rates to the highest level in the last 15 years. Besides, their living expenses are also seen to skyrocket in recent years. However, reports have proven that house pieces have dipped by 3.5% this year up to June – the largest fall in residential property prices since 2009.

Despite unaffordability and increased inflation, potential homeowners are planning to make home investments. A major reason behind this rising demand among home buyers is that the Bank of Canada (BoC) has finally stopped increasing the mortgage rate after more than a year of continuous raise since March 2022.

Should I Buy A Home Right Now or Wait a Bit Longer?

Yes! A wise decision would be to buy a residential property now and get a 5-year fixed mortgage. When the rates go down in the future (and they will), you can settle for a lower rate. If you cannot purchase a single-family home by yourself, you can purchase an investment property with 2-3 of your friends and sell it in 4-5 years to maximize your returns.

When the mortgage rate remains fixed for five years, the rate may increase if you have the loan still by that time. Please note that your loan won’t be paid off automatically after five years – only the interest rate will start fluctuating after that time.

However, Canadians should adjust their expectations of how a normal mortgage rate would look in the upcoming years. They also need to consider the rising cost of living, which is ultimately compounding the mortgage rate. According to Robert Kavcic, senior economist, Canadians will face much higher rates going forward than the rates they got used to, and more so, after the 2008 financial crisis.

Some buyers believe the scenario may be more difficult in the upcoming years. Therefore, they are revising their fixed-rate mortgages now. The present time is a better bet to invest in a home by qualifying for a five-year fixed mortgage. That’s because it is the lowest mortgage item to invest in at the current moment.

Moreover, the Bank of Canada has been raising its Overnight Lending Rate since last year’s March to bring down inflation to its 2% target. However, according to the BoC governor, Tiff Macklem, it is expected to continue making it challenging for Canadian households.

Key Takeaways

So, if you are willing to buy a home, now is the right time, provided you play the right cards. Opt for a 5-year fixed mortgage to enjoy a fixed interest rate for five years. You only need to pay a specific interest rate for the particular loan term. It will maximize your profits. But consider all the other factors and expenses, including cost of living, renovation and maintenance expenses, and more. So, take the leap of faith and make smart property investments. For more information about mortgage approval, book a free consultation with mortgage agent, Leo Ragusa.