Alexandre and Valérie have always opted for the fixed rate and if they considered the variable rate, they decided to pass this time.
“The variable rate will be attractive when rates start to come down, but that’s not the case yet,” says Alexandre. There is always a lot of volatility and it would be too stressful at the moment to go to a variable rate. »
In fact, according to Véronique Caron, mortgage broker and team manager at Multi-Prêts Hypothèques, we will still have to show a little patience before we see rates go down. “At the beginning of March, the Bank of Canada decided to maintain its rate rather than continue to raise it, which is a good sign,” she says. We expect a status quo for the next few months and, towards the end of 2023 or the beginning of 2024, we could see rates start to fall. »
The term and other conditions
To possibly be able to take advantage of lower rates, the couple opted for a term of three years instead of five. “It’s the first time we’ve done this,” says Alexandre.
“That’s what we often recommend at the moment,” says Véronique Caron. We don’t want our clients to sign a five-year fixed with today’s high rates and then start going down. And while loan rates for a year or two are high at the moment, some banks are offering promotions for a three-year term. »
But you also have to look at other particularities of financial institutions, such as penalties if you ever want to cancel your contract to take advantage of lower rates or to sell your property.
Sometimes it is worth choosing a bank that is more flexible than the others, even if its rate is slightly higher. When we meet with a client, we look at their overall financial situation and their short and medium term projects in order to be able to choose the best option to meet their needs.
Véronique Caron, mortgage broker and team manager at Multi-Prêts Hypothèques
Budget choices
While Alexandre and Valérie’s current rate is 3.28%, it will increase to 4.99% in May with their new contract. Thus, the couple will have to allocate $160 more per month to their mortgage loan. “It is certain that we will have to make certain choices, affirms Alexandre. For example, we have cut housekeeping services. It sucks, but it’s not the end of the world either, because we’re not talking about essential needs, like the quality of food. »
The people who are suffering the most from the rise in interest rates at the moment, notes Véronique Caron, are those who bought their property towards the end of 2021 and the beginning of 2022 and who took a variable rate. “It was then around 2.25% and it is now down to 6%, specifies the mortgage broker. For many, it is very difficult. »
The stress test
Alexandre and Valérie, who bought their property 10 years ago, had fortunately anticipated the rise in rates. “We bought our house with a fixed rate of 2.89% for five years, but we knew that the rates would increase, recalls Alexandre. To make sure we chose a house that was within our means, we ran simulations with higher rates. »
Moreover, since 2018, Canadian buyers have been required to submit to the stress test. They must have sufficient income to obtain a loan at the highest rate between these two rates: the qualifying rate – currently at 5.25% – and the rate obtained +2%.
“The introduction of this test has really ensured that customers who have qualified since 2018 would mathematically be able to pay their mortgage despite a rate hike,” says Véronique Caron. This is one of the reasons, I think, why the economy has not collapsed despite the rapid rise in rates over the past year. »