Alexandre and Valérie have always opted for the fixed rate and if they considered the variable rate, they decided to pass this time.
“The variable rate will be attractive when rates start to come down, but that’s not the case yet,” says Alexandre. There is always a lot of volatility and it would be too stressful at the moment to go to a variable rate. »
Indeed, according to Véronique Caron, mortgage broker and team manager at Multi-Prêts Hypothèques, it will still take a little patience before we see rates go down. “In early March, the Bank of Canada decided to hold its rate rather than continue to raise it, which is a good sign,” she says. We expect a status quo for the next few months, and towards the end of 2023 or the beginning of 2024, we could see rates start to decline. »
To possibly be able to take advantage of lower rates, the couple opted for a term of three years instead of five. “It’s the first time we’ve done this,” says Alexandre.
“That’s what we often recommend these days,” says Véronique Caron. We don’t want our clients to sign a five-year fixed with the current high rates and then start to go down. And while loan rates for a year or two are high right now, a few banks are offering promotions for a three-year term. »
But you also have to look at other particularities of financial institutions, such as penalties if you ever want to cancel your contract to take advantage of lower rates or to sell your property.
While Alexandre and Valérie’s current rate is 3.28%, it will increase to 4.99% in May with their new contract. Thus, the couple will have to allocate $160 more per month to their mortgage. “It is certain that it will be necessary to make certain choices, affirms Alexandre. For example, we have cut housekeeping services. It’s boring, but it’s not the end of the world either, because we are not talking about essential needs, such as the quality of food. »
The people who are hurting the most from rising interest rates right now, Véronique Caron notes, are those who bought their property in late 2021 and early 2022 and took a variable rate. “It was then around 2.25% and it is now at 6%, specifies the mortgage broker. For many, it is very difficult. »
Alexandre and Valérie, who bought their property 10 years ago, had fortunately anticipated the rising rates. “We bought our house with a fixed rate of 2.89% for five years, but we knew the rates would go up,” recalls Alexandre. To make sure we chose a house that was within our means, we ran simulations with higher rates. »
In fact, since 2018, Canadian buyers have been required to submit to the stress test. They must have sufficient income to obtain a loan at the higher of these two rates: the qualifying rate – currently at 5.25% – and the obtained rate 2%.
“The introduction of this test has really ensured that customers who have qualified since 2018 were mathematically going to be able to pay their mortgage despite an increase in rates,” says Véronique Caron. This is one of the reasons, I think, why the economy has not collapsed despite the rapid rise in rates in the past year. »
