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Interest rate will impact new homebuyers most in Okanagan

The Bank of Canada interest rate jumped a full percentage point on Wednesday
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If you have a fixed mortgage, Epic Real Estate president Shane Styles says you need to stop panicking about the interest rate increase because it has nothing to do with you.

“I’m dealing with mortgage professionals all the time…and I’ve heard this from three separate mortgage brokers in the last week, and they’ve all said, ‘I’m getting all these phone calls from fixed-rate mortgage holders worried about their interest rate,’” Styles said.

Homeowners with a fixed rate mortgage won’t be impacted by the rate increase, he says.

For young want-to-be homeowners panicking that the rates are too high, Styles says you should look at where they were 20 or more years ago.

“In 1975, the interest rate was 11.75 per cent. 1985 it was 11.5 per cent. 2006 it was 6.95 per cent,” he said.

He points out those rates are significantly higher than the 2.5 per cent it jumped to on July 13.

“They see the headlines, and this is part of the challenge. But they don’t have the time or they don’t do their due diligence to understand really what it means to them,” Styles said.

So who will be impacted in the Okanagan?

Styles says the people who will feel that rate increase the most are the people trying to become first-time homeowners right now.

“Usually they are kind of scraping together everything they can for a down payment and making sure they’re in a solid job,” Styles said.

He says the whole point increase didn’t come as a shock to those in his industry, but it could to someone already struggling to pay their mortgage.

“A $300,000 mortgage – just to pull a number – on Tuesday, what would that cost them in a payment per month? Because at the end of the day the rate means nothing.

“It’s really about what the payment is every month…I look at it on a month-to-month basis, what can I afford each month. So, you take that $300,000 mortgage on Tuesday it was $1,343 per month. On Wednesday it went to $1,450 a month.”

Styles says if the extra $107 monthly is causing you stress, you probably shouldn’t have taken a mortgage in the first place.

In the long run, Styles says people will need to rethink their spending habits as one night of dinner and drinks for two can easily make up the extra cost.

Kelowna-based mortgage broker Allison Swanson says the same thing. “I think that there is a difference between capability, like can you afford these mortgages, and comfortability,” she said.

Swanson says it comes down to priorities and what people really want.

She agrees those most impacted by the rate increase will be first-time buyers, especially those shopping at the top of their budget.

“Their borrowing qualification is going to be reduced, because the Bank of Canada mandates that we qualify you as either 5.25 per cent or the contract rate plus two per cent, whichever is higher,” Swanson explained.

“So, right now that 5.25 per cent is kind of out the window and we’re looking at contract rates plus two per cent. So, people are qualifying from 6.5 to eight per cent and that is cutting into their budget.”

Swanson also acknowledges those with a fixed-rate mortgage up for renewal will also be impacted.

“When you’re renewing your mortgage the current leger that you have is simply going to offer you a renewal rate. You can choose to take that rate, but I always recommend talking to a mortgage broker,” Swanson said.

“Just as a side note, you can review your mortgage at any time, not necessarily just at the renewal date. So, if your interest rate has increased by a few per cent, yes your payment is absolutely going to go up, but keep in mind over that five year term, let’s say on average it’s a term of five years, you’ve paid down a significant amount of your principal, so your payment isn’t going to go up as much as you think it is.”

Swanson recommends reviewing your mortgage annually and speaking with the experts to know all your options.

READ MORE: Bank of Canada hikes key interest rate by full percentage point


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brittany.webster@blackpress.ca

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Brittany Webster

About the Author: Brittany Webster

A video journalist with Black Press Media. I recently made the exciting move from my radio anchor position at AM 1150 to this new venture.
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