The prospect of buying a home is an exciting milestone, but it’s no secret that high mortgage costs remain a barrier to entry in the housing market. While the expectation is that the Bank of Canada will keep cutting rates, house hunters remain on the sidelines as they eagerly await the rollback of high interest rates before committing to home ownership.
But is it true that high rates alone should discourage you from entering home ownership? Before we answer that, it’s important to understand what a mortgage loan is and how higher and lower rates impact homeowners.
The Basics of Mortgage Rates
Mortgage rates are the interest rates charged on a mortgage loan. They can be fixed, meaning the rate stays the same over the life of the loan, or adjustable, meaning the rate can change at specified times. These rates are crucial because they determine how much you will pay over the life of your loan.
When you take out a mortgage, the rate you get can significantly impact your monthly payments and, ultimately, the total cost of your home. For instance, a higher rate means higher monthly payments, while a lower rate means lower monthly payments.
Myth Busted!
While many potential homebuyers believe they should wait for lower mortgage rates before committing to homeownership, we’re here to rekindle home buyers’ enthusiasm and bust the myth that interest rates alone need to deter you from getting off the sideline and into homeownership. In fact, because many mortgage brokers and banks ensure eligibility to receive reduced interest rates if rates are lower prior to closing date, waiting for rates to drop is largely irrelevant if you’re in the market for a new build which could be 12-18 months away from possession.
Furthermore, waiting for lower rates could mean missing out on your dream home or paying higher prices as home values continue to rise. Instead of waiting for the perfect rate, focus on finding a home that meets your needs and budget. You can buy your townhome at this years’ (2024) pricing and move in while availing of potentially lower 2025 interest rates!
But don’t just take our word for it. Industry experts and mortgage professionals, MMG have this to say, “Once approved, our client’s rate will be guaranteed and they may be eligible to receive a reduced interest rate if rates are lower prior to their closing date”.
More Good News!
It gets better! The federal government recently announced amendments to borrowers of newly constructed homes allowing amortization periods of 30 years instead of the previously allotted 25 years. This adjustment will extend mortgage payments for 5 years, resulting in lower monthly payments for purchasers of new builds which can potentially allow a significant increase in the mortgage amount you are eligible for. Stay tuned for updates on this!
But What If Rates Stay High?
Today’s 50-basis-point cut (as of Oct 23, 2024) has created excitement in the homebuyers market. However, there are still steps you can take to make homeownership more affordable if rates remain higher than ideal. First, work on improving your credit score, as this can help you qualify for a lower rate. Additionally, save for a larger down payment, which can also help you secure a better rate.
Consider exploring different types of mortgages, such as adjustable-rate mortgages (ARMs), which may offer lower initial rates. Finally, shop around and compare offers from multiple lenders to find the best rate and terms for your situation. With careful planning and preparation, you can navigate potential high mortgage rates and still achieve your homeownership goals.
When you combine all of this with the fact that StreetSide is now selling affordable new-build townhomes in FOUR COMMUNITIES, perhaps now is the perfect time to jump into homeownership. Happy house hunting!