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What a rate pause at 5% means for homeowners



The recent decision by the Bank of Canada to maintain its policy rate at five per cent for the second consecutive interest rate decision has sparked discussions among homeowners and experts alike. This pause follows a series of interest rate hikes that began at a historic low of 0.25 per cent in March 2022.


Real estate experts suggest that the decision signifies stable but elevated borrowing costs for mortgage holders. Alana Riley, the head of mortgage, insurance, and banking at IG Wealth Management, commented that this rate pause brings "welcome relief for Canadians." She believes it offers a sense of stability and assurance for both current and prospective mortgage holders, contributing to a more predictable and sustainable environment for the housing market.


Despite the apparent stability brought by the rate pause, homeowners are still contending with historically high borrowing costs. Daniel Vyner, the principal broker at DV Capital, notes that the elevated interest rate environment will affect people differently. Many homeowners, especially those who purchased their homes in a lower-rate environment, may find this new normal less stable and financially straining.


Marie-France Benoit, principal and director of market intelligence at Avison Young, highlights that the Bank of Canada's decision provides clarity on the trajectory of interest rates, which can help real estate investors plan for more predictable financing conditions. However, it's clear that higher interest rates will have an impact on households, requiring them to allocate more of their income to housing, as noted by RSM Canada economist Tu Nguyen.


To cope with the uncertain interest rate environment, shorter-term fixed-rate mortgages have become popular among clients, says Daniel Vyner. Many are opting for these mortgages to re-evaluate and reassess their financial situation in one or two years instead of locking in for a longer term. Leah Zlatkin, a mortgage broker with LowestRates.ca, recommends three to four-year fixed products, noting that two years might not be long enough to navigate potential future recessions.


James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender, underscores that the rate announcement will have a mixed impact on various mortgage products. Variable-rate mortgage holders may find relief, knowing their monthly payments will remain stable. This pause can also indicate a continued period of relatively stable borrowing costs, which might encourage more individuals to consider longer-term fixed-rate mortgage options, says Alana Riley.


In the real estate market, the rate pause could create opportunities for savvy buyers who have been waiting on the sidelines. As more people struggle to qualify for mortgages, houses are lingering longer on the market, creating a buyer's market. Zlatkin suggests that now might be the time to capitalize on the opportunity to buy a house at a more reasonable price.


However, not all is smooth sailing in the housing market. Laird notes that the impact of higher interest rates is becoming apparent, with momentum in the real estate market across the country slowing down. Inventory is building, the number of transactions is decreasing, and prices are softening.


In conclusion, the Bank of Canada's decision to pause interest rates at five per cent provides a semblance of stability for Canadian homeowners. While it may not be an ideal rate for everyone, it allows mortgage holders to plan more predictably and may encourage a shift towards shorter-term fixed-rate mortgages. The real estate market is showing signs of adaptation to the higher rates, with potential opportunities for buyers, but also signs of a slowdown in market activity. The long-term effects of this decision on the housing market and homeowners' financial well-being remain to be seen.


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