In a recent article published in Les Affaires titled “Real estate: the rate of all woes,” John Fucale, Senior Vice President in charge of broker relations at Multi-Prêts, observed the impact of interest rate increases on mortgage payments and emphasized the importance of financial qualification in order to be able to purchase a property.
Increase in payments.
Rising interest rates are even more burdensome for variable-rate loans. According to Mr. Fucale, monthly payments have increased from $1,480.95 to $2,425.82, representing a rise of $944.47 per month or $11,333.64 per year.
“For the first time in 70 years, variable rates were not more advantageous than fixed rates,” he notes.
This increase is particularly difficult to absorb for more expensive properties. He himself admits that it has become quite difficult to find homes priced at $375,000 on the island of Montreal.
Those who renewed in 2021 should start repaying principal before 2026, with the expected rate cuts. But for those who chose a five-year variable rate in 2019 without adjusting their payments, their mortgage balance may fall behind the intended amortization schedule, Mr. Fucale explains.
Meeting qualification criteria.
To be able to buy a property, one must first go through the qualification stage, he continues.
The difference between 2022 and 2024 is significant, he notes, as the qualifying threshold for the stress test imposed by the Office of the Superintendent of Financial Institutions is now higher—set at the contract rate plus 2%.
Based on data from Multi-Prêts Mortgages, for a $375,000 home with a 5% down payment, the qualifying threshold increased considerably between 2022 and 2024, making it more difficult to qualify.
He recommends paying down certain debts and avoiding large purchases before buying a property.
rate shopping
Our mortgage brokerage expert also highlights the importance of shopping for rates. He explains that “mortgage brokers have the responsibility to assess the client’s needs,” and that the lowest rate is not always the best option.
He also emphasizes the importance of reviewing the criteria used by the lender to assess the client’s income—especially whether they take into account child benefits and secondary income—since this can significantly affect loan eligibility.
Here are a few suggested articles to help deepen your understanding of interest rates.
- Impact of high interest rates on consumer decisions
- Everything you need to know about fixed-payment variable rates
- L’hypothèque : fixe ou variable ?
- Five tips to cope with rising interest rates: interview on the show À Vos Affaires, TVA, September 5, 2023 edition
- Demystifying the economy | But how on earth are fixed rates set? | La Presse
Anticipate a potential drop in rates in 2024 by adjusting your strategy with the help of your broker. With their expertise, you can navigate the real estate market with confidence.
Don’t hesitate to contact a Multi-Prêts broker today to receive personalized advice and help you choose the type of mortgage rate that best suits your situation.