Interest rates in Canada have been at historically low levels. That’s possible since the Central Bank of Canada has kept the money supply following the inflation rate, keeping the exchange rate for the Canadian Dollar to the pre-crisis levels.
Although Canada is a net exporting economy, it could experience some fluctuations with interest rates, especially now when the world turmoil in energy has come to stay.
Mortgage rates are still well below the yearly inflation rate in Canada. If you have a good credit history, you will not pay more than 2.5% as a yearly interest rate for your mortgage. That will help you anticipate any additional living cost raise that could happen during the following months and let you preserve your current status of living.
However, interest rates could rise during 2022, affecting people who have gotten a mortgage with a variable rate. Suppose you belong to those who have borrowed money to buy their home using variable-rate mortgages. In that case, you may experience some monthly installments increase that would be manageable to pay.
Many banks could also extend your payments to ensure that you can lower the monthly premium you pay. The Canadian Government will certainly take measures to help mortgage holders pay their debt even when interest rates go up and avoid foreclosures that will only deepen the crisis in the real estate market.
Is It a Real Bargain To Commit In Buying a House Now?
Committing to buying a new home through mortgage lending is a very serious decision. You need to take into account the volatile financial environment and check your current monthly income to estimate whether or not you can anticipate the monthly premiums.
At this point we have seen home prices to be at the lowest level during the past five years. It’s a real bargain to buy a house right now, even when dealing with interest rates increases. Some banks still offer fixed interest rate mortgages that help you lock the rate for 20 or 30 years and know in advance what you have to pay for a monthly premium. Regardless of the fluctuations of inflation and interest rates, that could suddenly change overnight.
How Could You Afford Interest Rates Increases By Bank Institutions?
Banks don’t have any interest in foreclosing your home. They want to help you find a viable way to pay your monthly premium and increase their money supply by earning interest on your loan. When the Central Bank increases the overnight interest rates for any Canadian Dollar loans, you inevitably have more to pay as a monthly premium. That is more apparent when you have committed to variable-rate mortgages.
You can afford these interest rate increases since it doesn’t exceed 0.5% over a year most of the time. Everyone expects that financial turmoil will ease by the end of 2022, and the monthly incomes would also increase during that period to ensure that you would be able to pay your debts without losing your quality of life.
Applying for a Government-Backed Loan is the Right Thing to Do
When you see that your financial capacities are not enough to give you a good mortgage rate, then you can think applying for government-backed loans. Since you need to compromise with a smaller house not at the wished location, it would be better to negotiate the best mortgage rate for your income since the Canadian government will be the one paying a part of your monthly payment to the bank.
The Canadian government tries to shelter all people that are eligible to work and live in Canada. For that reason, you can find the banks that cooperate with these programs to apply for them and get a fixed-term interest rate that will be suitable for your current income levels. Whenever you feel secure that you can pay more, you can always sell your equity in the house and get a mortgage with market rates that will lead you to a house you always wanted.
However, using the government’s programs to make your home come true is not wrong at all, especially now that the living costs in the western world have taken the ascending trail!
Interesting Related Article: “What is a mortgage?“