What can homeowners expect to see as far as mortgage rates go in 2023?

No one is escaping the pain of higher interest rates. If you were in a fixed or variable mortgage and up for renewal, it will be at higher rates than you are used to paying. I feel there will still be interest rate hikes in 2023 and there are different options and strategies depending on the life stage and mortgage cycle. Lenders are working to look at new offerings to help Canadians. You are not in this alone.

The highest on the stress scale are those who are up for Mortgage Renewal this year. If you have a renewal upcoming, it’s critical to start the process early. If you have a renewal in the next 6-12 months, start consulting with an independent mortgage broker that can take your whole finances into consideration NOT just the mortgage. If you have debt outside your mortgage refinancing instead of renewing can save you hundreds or even thousands of dollars a month, and every 500/month in outside debt that you get rid of opens up qualification room (if you ever wish to move up the property ladder) increases monthly cashflow for you.

How Does This Increase Affect My Mortgage?

Anyone with a variable-rate mortgage, home equity line of credit (HELOC), or looking to renew their mortgage will immediately see their mortgage payments increase.

On a $500,000 mortgage amortized over 25 years, your monthly payments would be:

• An interest rate of 5.5% = $2,908.02/month
• An interest rate of 6.0% = $3109.33/month
• An interest rate of 6.5% = $3,349.12/month

It’s important to ensure that the lender you select moving forward (provided you qualify) does not have posted rates that will be used against you in IRD calculation when the market shifts and rates decline in upcoming years. If you are like 7/10 Canadians that will have a family change (divorce, new child, bonding families) we don’t have to look back far in history for “penalty woes” (penalties charged by big banks that financially disable borrowers to move forward with plans, and in some cases or eats their equity) because Canadians were unaware, they could have qualified for a better option. 

Remember any representative at any particular lender is a salesperson of their own product and has that bias when they are advising you. Canadians can not afford to make the costly mistake of looking only at the rate or being sold with a bias during these times.  

If the homeowner is over 55, they may want to consider a reverse mortgage, this is a mortgage that allows equity to make the payments (not stress tested like traditional mortgages) so it won’t impact their current cash flow. This can also clean the slate of any outside debts that have accumulated during these trying times. This solution can help parents gift funds to children who may need a lump sum if they hit their trigger rate within their mortgage and need to make a prepayment to assist with affordability. Parents are seeing it as an early inheritance while still keeping their assets and not impacting cash flow. The reverse mortgage is also another way parents are gifting down payments for those wanting to get into the market without impacting their cash flow.

Do you have any mortgage rate advice for buyers or sellers?

Sellers

If you will need a mortgage for your next move, don’t assume your mortgage is portable or just because you had or have an existing mortgage before that it will be easy to requalify for one.

It is a complete requalification based on your current credit and income. Qualifying rates are up to 7.5%-8% on average right now with this last hike in December and are expected to go higher with inflation nowhere near the 2% target. We have a long way to go from its current 6.9%. Meaning you need approx. 30-35k in annual income to qualify for 100k in the mortgage amount. With the spreads between fixed and variable right now, you qualify for the most with a fixed rate, whereas previously you qualified for more with a variable. The factors that contribute you your financial well-being are always changing so be prepared to adapt your strategy based on the current market. When you do sell and take some capital in hand, ensure you have every single penny working to your best advantage – i.e., setting up an emergency fund, TFSA, and RRSP if that benefits you.

Buyers

You do have opportunities as grim as the news may seem. Savings rates are at an all-time high, the highest they have been in decades, so if you are starting to make a plan to buy for say 500k in the next few years and you start a savings plan for 4 years setting aside $520/month for a down payment, today’s savings rates can accelerate that to reduce the amount of time in your plan. There is also a new FTHB account for 2023 that may help with this. 

You can also take advantage of a product called purchase plus improvements that in previous markets with everything moving so fast you simply did not have time to pursue. This is a mortgage where you get the home renovation money at the time of the mortgage that required pre-planning during the offer and subject removal period. This means buyers get more of what is on their wish list within 120 days of purchase. Those still living at home or that don’t need to be out of their rental can really benefit from this.

Purchasing with a reverse mortgage can give you the chance to buy while prices are lower and keep your home until the market picks back up and you are ready to sell it, you can even combine this with a presale purchase for some longer planning as well. Good for people who want to move and want to do so in the most strategic way to build and protect wealth.

Rates will come down, RENT THE RATE, not the house! This is why we say lender choice is so important. Rates will go down it’s just a matter of when. While real estate prices are down, that not might be the case for too long with nearly 1.5 million people expected to be immigrating to Canada over the next 3 years. 

How can Canadians prepare for next year regarding mortgage rates? 

Start early and get unbiased advice from an independent mortgage broker.

Review your budget frequently. Understand your payments will be based on current rates and budget accordingly. Take whichever rate and product suit your family. The answer of fixed or variable will be unique to your profile. Use a mortgage calculator frequently to ensure you understand what your payment would be on current rates this will help you hedge against inflation with your mortgage and decide if you are going to put money in savings short term to earn more to help your pre-payment go further to pre-pay your mortgage. Consider if an RRSP contribution will result in a tax refund to further help you pay down your mortgage to get ahead and use every resource out there to get ahead financially – have your dollar stretch for maximum financial benefit.

Choose a 5-year fixed-rate mortgage (with the right lender) – If you think inflation is going to be sticking around for a while or if your finances are tight, this would be the best choice.

Choose a 5-year variable rate mortgage – If you think that the BoC is finished raising their rates and that they might even go down sometime in 2023 or 2024, then this would be a good choice.

Why do we say this? 

Rate decisions are data-dependent and are based on circumstances as they happen. We have all already made decisions based on when Tiff Macklem came out in 2020 saying “rates will be low for a long time”, while this is the first time in history the BOC has lost money. The question then becomes: how long will they allow themselves to lose this much money?

It’s easy to see why you have to look inward and go with what works for you. While we can advise on different options, you as the borrower will have to make the final decision.

Lenders are in transition right now, they are being acquired and consolidated, some mortgages are insured behind the scenes and will allow you to stretch out the amortization to help with lower payments. Lenders are reviewing their book of business and redesigning solutions and products.

Ensure the provider you are working with can answer these simple questions for you to know you are aligned correctly to be best assisted, not only when you get a mortgage, but for the entire life cycle of having one.

What are mortgage rates based on and why?

The bond market and Bank of Canada. If they are not watching these items, understand their timings and correlation on how they impact rates, how can they possibly advise you?

What commitment do you have to manage my mortgage?

What if their internal review process helps you take advantage of changing markets? What is the trigger point for that? If there is no formal process here, run the other way or hang up the phone.

Will I be protected if I take a fixed rate? 

What inflation hedge strategy do they recommend and how frequently and how do they advise you on these items? Every time there is an increase or decrease in bonds or BoC or product change, you should be notified of the impact.

What strategy do you recommend and why?

Your strategy will have to change as change is constant. What is relevant today and what past experiences will you utilize to help me adapt to the current market? 

Different examples of why you select specific lenders over others and how you are proactive to reduce financial venerability with a plan that is personalized for you.

Angela Calla is an 18-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

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