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The real estate market is constantly shifting and evolving year-round as supply, demand and borrowing costs constantly change in order to create a sustainable balance that is good for the economy. This means, that sometimes mortgage rates are going to rise and lending costs are going to spike.
While this can feel like it throws a wrench into the investment plans and home buying dreams held by many real estate hopefuls, the truth is that without these changes, the market would not be sustainable for anyone.
Of course, this doesn’t change the unease that many feel whenever rates go up. So, let’s take a moment to look at how you can make strong investments despite rising interest rates in 2023.
But first, if you are interested in getting a clearer picture of your own buying power in today’s rate economy, we want to help you. All you need to do in order to get started is click the link below for a free strategy call with our mortgage team at LendCity and we can discuss how you can get the most financing at the lowest mortgage rate available today.
What is a Mortgage Rate Hike?
To put it simply, a mortgage rate hike is the process of banks and financial institutions raising interest rates for mortgage products across the board.
This process is also often referred to as a rate increase.
Why Do Interest Rates Change?
Rate hikes typically happen in response to the cost of lending money not keeping up with the demand and market activity – often resulting in out of control inflation within the real estate market.
For example, throughout 2022 and even today in 2023, inflation in Canada sits above its target level of approximately 2%. As a result, the Bank of Canada has been steadily and consistently raising its overnight rate in an attempt to slow things down.
At the time of writing this article, the current overnight rate from the Bank of Canada is 4.75% – the highest it has been since 2001. However, while these increases have made it harder to qualify for a mortgage, they have also succeeded in decreasing the rate of inflation and bringing the economy back to a more sustainable level.
How Do Rising Mortgage Rates Impact Your Buying Power?
Since your mortgage interest rate plays a direct role in determining what your monthly mortgage rate is going to be, rising mortgage rates has a negative impact on your buying power and decreases the maximum financing amount that you can afford.
How Do Rising Interest Rates Impact Your Current Mortgages?
As for the monthly payments you are making on existing mortgages, the impact is different.
For example, if you have a 30-year fixed-rate mortgage, the interest portion of that mortgage is going to be locked-in so that rising rates are not a concern for you.
Meanwhile, with a variable-rate mortgage (or adjustable-rate mortgage), your interest portion of your mortgage payments are going to change with the rates as they fluctuate. This means that rising rates can result in your amortization being extended on an adjustable rate mortgage, or decreasing when rates fall.
Being Prepared For Rising Interest Rates
One of the largest problems that people have been dealing with in recent years is the fact they were not prepared for mortgage rates to rise. So, the next step for you should be to discover how you can be prepared in order to prevent these types of issues from bringing you down.
Here are some of the best ways to be prepared for rising interest rates and how they can help you invest wisely.
Pre-Approvals
Your greatest tool in protecting yourself from rising interest rates, is getting a low interest rate earlier. This is where pre-approvals and rate holds come into play.
By getting a pre-approval, you can get a commitment from a ;ender at a specific rate and financing amount. This rate is then held for 90-120 days on average, meaning that even if rates go up, you can enjoy the same low mortgage rate that you would have had anyways – while maintaining your full buying power.
That way you can walk into a deal with a better product than the average mortgage rate other buyers are equipped with.
Staying Connected
Another great way to stay prepared for rising rates is to stay connected with industry professionals who know the signs of rising rates so that they can help you protect yourself and your investments. By working with a mortgage broker, mortgage agent, or well-informed realtor, you can keep an eye on the market through them, and find the best deals despite the ongoing market shifts.
In fact, in order to help you stay connected we have launched a new hub in order to help you stay up-to-date and informed about all things real estate. To join our hub today, click the link HERE to register.
How to Get The Best Mortgage Rate
If you want to make sure that you are getting the best available rates for your mortgage needs, let us help you by setting you up with a free strategy call with our team. From there, we will assess your goals and financial position to ensure that you are put on the right track.
In order to claim your free call, all you need to do is click the link below and book your time today. Then, we will get the process started so that you can spend less time worrying and more time investing.