COVID-19 had caused a global financial upset and has introduced complex economic changes. Interest rates are currently relatively low and are predicted to stay that way for a while.
The Bank of Canada reported that lowering the policy interest rate to its lower bound of 0.25%, bond purchases, and easing global financial conditions have contributed to Canada’s low domestic interest rate. The Bank of Canada also reported that lower interest rates have made it easier for businesses and households to borrow. This rate ties April 2009 for Canada’s all-time lowest rate. The highest rate Canada has seen was 16.00% in February 1991. What does this mean for Canadians who are looking to buy?
Is This A Good Time To Buy?
Mike Boyle, mortgage broker and president of The Mortgage Group Inc Calgary, says there’s never been a better time than right now. He says this is based on a combination of low-interest rates and low property prices in Calgary. The lower interest rate means people can qualify for higher amounts than they would otherwise be able to.
You could potentially get a better deal if you buy now because certain areas have fewer people buying. You might benefit from many people staying close to home and travelling less. There could be opportunities to snatch up short-term rental properties that investors may not be able to afford anymore due to dwindling bookings.
What if you have been thinking about purchasing but wanted to wait a year or two, would now be a good time to move forward anyway? As interest rates are predicted to stay low over the next year, it will likely still a good time to buy. The CMHC predicts a 9% to 18% decrease in housing prices in the next 12 months.
It’s important to ask yourself a few questions, including:
· Do I Qualify?
· How Much Do I Qualify For?
In June, the CMHC announced changes to the qualifications people must meet to be approved for a mortgage. These changes, effective as of July 1st, include:
· Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42.
· Establishing that at least one of the borrowers have a minimum credit score of 680.
· Non-traditional down payment sources that increase indebtedness will no longer be treated as equity for insurance purposes.
The CMHC announced they would be suspending refinancing on multi-unit mortgage insurance unless the funds are used for repairs or reinvestment.
To put this into simpler terms, according to MoneySense: “The new rules will lower the amount of debt an applicant for an insured mortgage can carry, set a higher credit score to qualify for CMHC insurance, and will require a homebuyer to use their own, and not borrowed, funds for their down payment.”
These changes mean you might not qualify any more, or you may be eligible for less. If you have questions or concerns about these changes or about qualifying for a mortgage, your mortgage broker can help.
Potential buyers who qualify should also ask themselves if buying is the best option for them. Just because rates are low, and it seems like a good time to buy, it doesn’t mean that you should. Buying a home is a significant financial investment. It should be taken as seriously as it was before the pandemic.
When The Rates Do Increase, How Can I Be Sure I'll Be Able To Pay?
This is the great unknown, and nobody has a crystal ball. The mortgage stress-test requirements are put in place to ensure people can afford their homes down the road when rates start to increase. Stress testing is meant to ensure that homeowners don’t borrow more than they can afford and avoid financial trouble. Rate increases will make a difference to the amount you pay on your monthly payments. Boyle recommends trying to pay down your mortgage while the rate is still low, and hopefully, when it does rise, you have an equity position in the property.
If you are considering buying a home or having questions about how Canada’s low-interest rates will affect you, reach out to our team at the Mortgage Group Inc. Our Calgary mortgage brokers are always happy to help you find the best solution.