First-time homeowners hit hard by increasing interest rates

Climbing interest rates are making things uncomfortable for first-time homebuyers.

Charla Adrian is a mortgage expert with The Mortgage Group in Saskatchewan. After seeing interest rates rise for the third time in recent months this week, she said it has been having a cooling effect on the market.

“Initially it’s kind of slowing the market down a tad. It hasn’t really (brought it to a) halt,” Adrian said.

People are still buying homes despite the high rates, she said, usually finding variable mortgage rates more appealing than fixed-rate options. That’s because the Bank of Canada’s rate will only increase to a certain point, Adrian explained, in an effort to slow the markets, particularly in Vancouver and Toronto.

Charla Adrian with TMG The Mortgage Group in Saskatoon. (Submitted)

A variable rate is around 1.5 per cent lower than a fixed rate right now, and Adrian said the likelihood of that rising above five per cent is low.
“I haven’t seen that in 15 years,” Adrian said.

Those most affected by the increases are first-time homebuyers, who must also contend with a high qualifying rate.

The additional 5.2 per cent, or two per cent of the fixed rate, means buying power for new homeowners is diminished in the current market, Adrian said. It also makes it more difficult for people trying to buy a home to get qualified in the first place.

Adrian said those who have invested a lot into their homes — perhaps beyond their means — could see financial pain in the future.

“Come renewal time, especially people that maxed out their buying power and went for the most expensive (option), it could get a little scary for them,” Adrian said.

Those renewal payments could be increasing by $200 or $300 a month, she said.

Looking ahead, Adrian said she could see another one or one-and-a-half per cent increase coming for interest rates, likely over the next year. She predicted rates will start to level off after that, however, and the currently high rates will help to level out the market and stop the overbidding on homes that have been the trend lately.

Rates have been “all over the map since COVID,” Adrian said.

Her biggest tip for those investing in real estate right now? Stick with the variable mortgage rate.