You’re living in historic times. The Bank of Canada’s key interest rate has remained unchanged since 2010, the third longest ‘pause’ in rate movement in history and the longest in 60 years.
So what’s the significance of that?
The Bank of Canada’s (BoC) key interest rate affects the interest rates that businesses and consumers pay for bank loans, including residential mortgages.
The extended period of near-historic lows for the BoC rate has pushed competing banks and mortgage companies to offer what are considered the lowest residential mortgages rates ever in Canada.
The Effect on Real Estate in Markham
Low cost mortgages make it less expensive for prospective homeowners to buy a house. That means they can spend more when they do and the historic mortgage rate lows have created historic highs for the average cost of a home in Markham.
What if the BoC Raises Interest Rates?
It’s been the biggest question in residential real estate since mortgage rates hit bottom. House buyers fear that, as soon as interest rates begin to rise, they will not be able to afford to borrow the money needed to buy a new home. The fear of home sellers is that the value of their houses will plummet if interest rates go up because there will be fewer buyers who can afford a mortgage.
What Should You Do?
No one can predict the future. But there are a few things to keep in mind:
- 1. Even if they rise, interest rates will not likely go up nearly as fast as they came down. A year before they hit their most recent low point of .5% in April of 2009, the BoC rates were 650% higher, at 3.25% in April of 2008.
- 2. Even when interest rates were at their historic high of over 20% in the early 1980s, it caused average home prices to go down, but there was no housing market meltdown or panic selling.
- 3. Somewhat higher interest rates are good for the economy. A slow, steady increase is an indication of a growing economy and job market, which can help more people afford mortgages.
The bottom line is to not live in fear that mortgage rates will go up. At some point they will, especially because they don’t have much room to go down. If you are interested in buying or selling home, today is as good a time as any.