It’s not a surprise to anyone that mortgage rates are a reflection of bank of Canada’s rates; but one universal principle dictates if those rates increase or decrease. Let’s take a refresher course in Economics 101; rates fluctuate based on the basic theory of supply and demand. As home sales increase, rates tend to also increase and the opposite can be said if sales decrease. Although this is a reliable model, there are TONS of other factors that can influence your mortgage rates moving it up and down, forwards and backwards, leaving you a little dizzy and a lot more nauseous, much like a monster rollercoaster ride!
Let us try to make a little sense for you amidst all this turbulent chaos. Lower mortgage rates means that as a homebuyer you have the ability to buy something that cost a little bit more, awesome right? Well not quite, this also means that the market switches to a seller’s market, hence the costs of homes can sky rocket as a result this will reduce the benefits of your low mortgage rate. As home prices increase mortgage rates generally follow suit. So as you can see waiting and timing to jump into a mortgage can be a vicious cycle!
When you purchase a home the big question is always asked: Fixed or Variable mortgage. Simply put fixed mortgage rates on average are higher than variable rates, but keep in mind variable rates do not stay constant, so even if you lock in a low variable mortgage rate there is no guarantee that this rate will stay the same.
If you’re not yet ready to have a spin on the rollercoaster there are ways in which you can prepare yourself for the sometimes less than enjoyable ride. Understand that the key to a obtaining a good mortgage is to have a stable income as well as outstanding credit. With this preparation when you are ready to plunge into a mortgage you will have the best economic condition achievable!
It’s hard for anyone to predict when and how mortgage rates are going to change, if you want to guarantee yourself a little security and take a break from the mortgage rollercoaster for a little while you catch your breath, lock into a fixed mortgage. If you’re one for an exciting ride cautiously take a variable rate! No matter what you choose and when you decide to commit to a mortgage it’s important to keep in mind that you should always spend less than you are really eligible for and have some cash reserve in your savings account in the case you do begin to fall off the mortgage rollercoaster!