What impact will the increases in interest rates have on you when purchasing 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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