Mortgage | High rates influence decisions

Five-year fixed rates are currently at just over 5%. They were about half as high in 2019. Experts expect a drop soon, but when? Nobody can know. One thing is certain: the decisions made by consumers are influenced by the current market.

“Interest rates have increased sharply over the past two years, so there is a shock in the market for people who took out a mortgage loan four or five years ago and who have to renew it,” Alexandre immediately indicates. Bélanger, Montreal District Director, Mobile Mortgage Specialists, TD Canada Trust.

Indeed, the rise in rates has an impact on consumers’ budgets. John Fucale, senior vice-president, broker relations, at Multi-Prêts, calculated the difference for a mortgage loan of $245,000 in 2019 with a fixed five-year term amortized over 25 years. “The payment of $1,096 per month will increase to $1,445,” he illustrates. This person must also absorb inflation on everything else. That makes a lot. »

Result ? People shop a lot. “Consumers are ready to do anything to save 10 basis points (0.10%) because it makes a huge difference with high rates,” says Alexandre Bélanger.

More fixed rates than variables

While fixed rates are already high, variable rates are even higher.

The expert adds that these consumers are ready to pay more interest at the moment knowing that they will recover these amounts and more in subsequent years.

However, not everyone is willing to take this risk. “It takes experienced people who are quite financially solid and who, generally, have a lot of equity [de valeur nette réelle] on their property,” explains Alexandre Bélanger.

Smaller terms

While historically, consumers mostly opt for five-year terms, the experts consulted note that the expected drop in rates encourages people to go for shorter terms, namely two or three years.

Desjardins even created a promotion for a term of 39 months (three years and three months).

“We are trying to best meet the needs of our members with this new term,” says Jonathan Dion, mortgage representative at Desjardins Group.

Solutions to reduce the budget

For some people, however, rising mortgage rates are simply too much to absorb. Several options exist for them.

John Fucale also sees more and more clients consolidating debt with their mortgage loan. For example, to add their car loan and the balance of their credit card whose interest rates are much higher.

Another trend he notices: interest in alternative lenders. “They take more risk, for example by accepting higher qualifying ratios, but they have interest rates about 1% higher than traditional lenders,” he explains.

Shop ahead

There are solutions for all needs. Experts agree that the ideal is to discuss in advance with your advisor your profile, your risk tolerance and your short, medium and long term projects.

“The rate is not the only important element,” says Jonathan Dion. You have to find the best product according to the person’s needs. »

And the best thing to do is shop early. “I recommend starting four to six months before the renewal date,” adds Alexandre Bélanger. This way, the person can have a rate frozen which will be revised downwards if the rates go down. Then, the person will have a clear idea of ​​the impact of the rate increase on their budget and they will be able to prepare accordingly. »