Bank of Canada increases Prime rate by 1% --- what does this really mean to the home buyer?

Bank of Canada prime rate increases by 1%

On this past July 13th, the bank of Canada announced an increase of the prime rate to a full 1%, which means that the new target is 4.7%. Now the question is, how does this translate to the average consumer and especially to the Real Estate Market?.

Let's compare how much would you be monthly paying for a hypothetical amount of  $100,000 mortgage, amortized for a 25-year, not compounded .

As you can see the difference, is about $54.00 monthly. Sure with this new increase, maybe you will have to lay down a  few burger meals or coffee breaks in the month but nevertheless manageable.

What this new increase will, in reality, hurt the most is your Mortgage application stress test reducing your borrowing power and this is calculated by finding out what your mortgage payments would be if the interest rates rise in value, this is called the qualifying rate. This qualifying rate differs depending on whether your mortgage is insured or uninsured. you calculate the Qualifying rate by adding 2% on top of your interest rate. So you might say the bank tried to forecast your financial situation and tried to determine if you could handle interest rate fluctuations. In spite of all these changes, the interest rates are still relatively low and with the current trend of the market prices slowing down, this could be arguably a good time to buy your new home.

Check out the below latest housing charts for the month of June 2022 where you an compare the YoY /MoM tendencies in the market, here you can see we had a strong sales pattern in 2021, but not so in the current 2022.

Now by reading the following New listings chart , the change is not so radical and seems to be slightly low compared to the previous year 2021. which means more offers on the table to pick and less competition to deal with. 

I always advise you to get in contact with an expert real estate agent of your choice and study your situation, that is because you will have to assess your current financial situation and if you are ready to buy, most of the time you get surprised to see how close you are from acquiring your dream home.

If you are considering buying real estate, have in mind two very important factors:  down payment and credit score. if you don't know how to realign properly your credit, please click on the link and take some time to read my blog, there you will find some useful tips and in regards to the down payment,  depending on the area where you want to invest, you could get a use of the CMHC incentives for the fist time buyers, for more information click here.

I hope you found information interesting and by now probably have a better perception of the current market conditions and what these changes are causing, so don't despair.

If you would like to chat more about it, please don't hesitate to contact me, either send me a text or use my contact information for a call.