In its efforts to cool inflation, the Bank of Canada has moved quick to raise interest rates — taking a bite out of housing demand. But while the move will lock many prospective homebuyers out of the real estate market, there are others who won’t feel the pinch.
During the pandemic, the Bank of Canada’s overnight rate plunged to a historic low of 0.25 per cent for two years. In the economic recovery inflation has soared reaching 6.8 per cent in April, 2022. To cool inflation, the central bank ratcheted up the overnight rate, which sits at one per cent after a 0.5 per cent increase last month — the most significant increase in the central bank’s rate since 2000. That hike came after the bank announced a 0.25 per cent increase in March.
Back in January 2020, when the average five-year fixed-rate was 2.5 per cent, a homeowner who bought a $1-million home, had an income of $200,000 and put down a 20 per cent down payment with a 25-year amortization would pay a monthly mortgage of $3,584. At 1.4 per cent — the lowest rate during the pandemic — monthly payments would be $3,161. Currently at 4.2 per cent, monthly payments would be $4,295 for that home.
“While we may have similar rates to what we had pre-pandemic, the change in prices has made these rate changes a lot harder to bear as income levels haven’t adjusted to inflation,” said Eric Lombardi, housing advocate and founder of More Neighbours Toronto, noting younger generations and new immigrants will be locked out of the market.
It's about time interest rates increase to where they should have been & we wouldn't have subprime lending & inflated housing markets following the US housing market crash. If a reverse mortgage is on valued at 55% at 6% Interest, then the Canadian housing market is inflated 45%.
Marjorie Taylor Greene
If true, families will be bankrupted trying to renew mortgages or loans.
... maybe