With news of interest rates increasing and the spring buying season just around the corner, I caught up with Mortgage Broker Alex Lavender of the Clinton Wilkins Mortgage Team to get the answers to your most pressing mortgage questions.
1. What questions are you getting from borrowers?
The top question right now is what will happen with interest rates? If I had a crystal ball, I would be a rich man. There are a lot of predictions out there right now, but from the data we are seeing it looks like there’s an expected 1% increase in rates in 2022 followed by another 0.50% increase in 2023. As of March 2nd, we have just had the first rate hike in almost two years. It is expected that this is the beginning of the rate increases for the next two years.
2. How are rising interest rates affecting mortgages?
Rising interest rates have two effects; They can increase the cost of mortgage payments and they can also reduce the qualifying power for a mortgage. As interest rates increase, you will typically see an increase to the stress test rate as well, which is currently set at the greater of 5.25% or the contract rate + 2%. In terms of payment increases, every .10% increase typically increases monthly payments by $5 per $100,000 of mortgage debt.
For existing owners, this really depends on the type of mortgage product. If someone is in a fixed-rate mortgage and currently owns a home, the increased interest rates will not affect them until their term ends and they come up for renewal. At this time they would need to renew at the rates available in the market and that is when they will see an increase. For variable rate mortgage holders their rate can go either up or down during the term. Most mortgage lenders will either increase or decrease the payments when this occurs, but there are some lenders that will keep the payment the same.
3. Do you have any tips for first-time homebuyers?
The most important tip is to get pre-approved. Ensuring you can qualify is only one aspect of a pre-approval, you also need to ensure that you can comfortably afford the payments for that mortgage as well. I highly recommend you contact a mortgage broker of your choosing to assist with this, as they have access to a wide range of lenders that can search out not only the best rates but the best terms for your unique situation.
The second most important tip in this market is to not get discouraged. It is very competitive and I know firsthand how disheartening it can be when you don’t have the accepted offer on your dream home. It may take some time but if you are persistent there’s a very good chance you will finally land that accepted offer.
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Real Estate Advisor based in Halifax, Nova Scotia. I help people buy and sell homes with Engel & Völkers.