The Bank of Canada’s decision to hold interest rates on Wednesday will provide relief to variable rate mortgage holders and could spur momentum in the nation's housing market, according to experts.
The Bank of Canada elected to hold its policy rate at 4.50 per cent Wednesday after an interest rate hiking campaign that began in March 2022 and included eight consecutive rate increases.
Leah Zlatkin, a mortgage broker and expert with LowestRates.ca, said in a phone interview Wednesday that the announcement from the Bank of Canada will mostly effect mortgage holders.
“That's [the decision to hold rates] good news for a lot of variable rate mortgage holders who have been very stressed about mortgage rates rising for them. In terms of fixed rates, if you already have a fixed rate, this obviously doesn't impact you at all,” Zlatkin said.
James Laird, co-chief executive officer of Ratehub.ca and president of CanWise Mortgage Lender, said in a statement Wednesday that the central bank’s announcement indicates those who have not hit their trigger rate are unlikely to.
A trigger rate is reached if a homeowner’s mortgage payment is not able to cover interest accumulated since their last payment.
“Variable rate holders and those with a balance on a home equity line of credit (HELOC) will breathe a sigh of relief, as it is the first time their rate has not increased in a year,” Laird said.
“With the Bank's view remaining largely unchanged from their January announcement, fixed rates should remain flat. Anyone who needs a fixed rate in the coming months should get pre-approved, this will protect them from any unexpected rate increases,” he said.
As the Bank of Canada followed through on widespread expectations that it would hold interest rates, Zlatkin said this could increase the confidence prospective buyers have in the central bank and spur people into the market.
“The thing that's very interesting for the Canadian marketplace right now is that this could actually move many buyers off the sidelines with that increased confidence in the Bank of Canada,” Zlatkin said.
Laird said the announcement from the Bank of Canada could act as a stabilizing force to Canada’s housing market and that prices are unlikely to fall further from current levels.
“This announcement provides more certainty that the rate hikes are finished, which should provide stability for current home values. It supports the expectation that homebuyer demand will return later in the spring,” he said.
Zlatkin said there is likely to be competition among those looking to buy a “turnkey” home. However, she sees opportunities in homes that might need work as prices are holding and inventory is down compared to the previous year.
“If you can strike quickly on a house that maybe needs a little bit of work, there might be some opportunity for you, we're actually seeing that, you know, houses are sitting on the market longer than they were last year,” she said.
According to Zlatkin, TRREB data shows the average home was listed for a total of nine days in February of 2022, while a year later homes are sitting on the market for 22 days on average.
As homes sit on the market for longer, she said there are opportunities for buyers as “no seller really wants to have their property sitting on the market for longer than two weeks.”
Since March of last year, Canada’s central bank has increased interest rates eight times by a total of 425 basis points.
A homeowner who put a 10 per cent down payment on a $748,450 home in January 2022, with a five-year variable rate mortgage of 0.9 per cent amortized over 25 years, would have a mortgage payment of $2,585, according to Laird.
Currently, Laird said that homeowner’s variable mortgage rate would be 5.15 per cent and their monthly payment $4,099.
“This means that by March of 2023, the total impact year-to-date for the homeowner [in that example] is $1,514 more per month or $18,168 per year on their mortgage payments (a 59 per cent increase),” Laird said.
SHORT-TERM FIXED MORTGAGES
Amid the current interest rate environment, Zlatkin said she is generally advising clients to choose a three-year fixed-rate mortgage to weather the storm of higher interest rates.
“I'm still recommending a three-year fixed mortgage and then re-evaluate at the end of three years because rates are still high,” she said.