Ahead of a potential interest rate cut from the Bank of Canada next week, mortgage brokers say people should make decisions about variable versus fixed products based on their financial standing, not whether they think rates will go up or down.
On Tuesday, Statistics Canada reported that Canada’s inflation rate fell to 2.7 per cent in June, leading economists to believe an interest rate cut by Canada’s central bank next week might be likely. David Larock, a mortgage broker and owner at Integrated Mortgage Planners, said in an interview with BNN Bloomberg on Thursday that if borrowing costs fall next week, “only variable rate borrowers will be affected directly.”
“If the Bank of Canada goes ahead on July 24 with a quarter-point cut, then variable rate borrowers will benefit soon thereafter,” he said.
“You’re paying a premium of about one per cent or more now for a five-year variable over a five-year fixed.”
Joe Sammut, a principal Broker and owner at Mortgage Architects, said in an interview with BNN Bloomberg Thursday that anyone who is “thinking of a variable (mortgage) needs to have the stomach to be able to withstand any upheaval in rates.”
He added that fixed mortgage rates are “very comfortable” at the current moment.
“What I’m telling people is you need to make a decision based on your financial position today, not guessing where prime might go (or) might not go and be comfortable with whatever decision you’re going to make in this market as we see it today,” Sammut said.
He said that individuals need to account for their own affordability and comfort level when looking for a mortgage.
“They need to be able to sleep at night,” Sammut said, adding that for many individuals, their mortgage is both their “largest investment” and also their biggest liability.
“So with that uncertainty, they need to be able to budget their affordability, making sure that whatever mortgage term they choose today, be it fixed or variable, that they can withstand waiting to see what happens at the end of their fixed term or waiting to see what happens with the variable rate over the coming years,” he said.
Real estate market
Penelope Graham, a mortgage expert at Ratehub.ca, said in a statement to BNNBloomberg.ca Thursday that the Bank of Canada’s previous interest rate cut in June has had a “minimal” impact on Canada’s housing market.
“The latest national real estate data indicates a short-term increase in sales in June. However, most buyers are clearly waiting for rates to lower further before returning to the market,” Graham said.
Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert said in a statement to BNNBloomberg.ca Friday that some buyers are confident that as rates decline they could purchase a house for a lower price with a lower mortgage rate.
However, she said this is “unlikely to be the case” due to an inverse relationship between interest rates and home prices, “especially in tight markets.”
“As rates decrease, home prices increase. Those that are trying to time the market may miss their window of opportunity. If you can get in the market now, do it,” Zlatkin said.
Victor Tran, mortgage and real estate expert at Ratesdotca, said in a statement to BNNBloomberg.ca Friday that he has seen more listings in the market currently “than in recent memory.” However, he added that sales have been “lagging.”
“Buyers are willing to wait and are weighing the current high rates against the slight dip in prices. This holding pattern is likely to continue until we see rates come down another 50 to 75 basis points,” he said.