Interest rates have been on steep upward trend in the past few months. The Bank of Canada has been hiking rates in an attempt to tame inflation, which is now at a 31-year high of 6.8%.
Rising interest rates affects all types of borrowing, but the biggest impact is on mortgages. In June, for example, the Bank of Canada raised rates to 1.5% from 1.0% and more increases could be coming.
So far, fixed five-year terms have been raised the most while variable-rate mortgages have remained more competitively priced, but that may change soon.
For homeowners who purchased properties during COVID-19 when rates were at historic lows, the difference in monthly payments could jump by nearly 50% in the coming years when those mortgages are up for renewal.
This is causing fear and anxiety among many homeowners. A new debt survey from Manulife Bank of Canada, for example, found that nearly one in four homeowners say they will have to sell their home if interest rates go up further.
On the flipside, rising interests rates historically tend to go hand-in-hand with a cooling housing market as purchasing budgets shrink. However, this time around there are additional factors at play including particularly low housing inventories.
Whichever side you fall on, experts are predicting that the current economic climate and rising interest rates will be a game-changer for Canada’s housing market.