As the interest rates begin to climb, people that are interested in buying a Calgary home will follow one of 2 routes. They may either decide to get right into the market as fast as possible before the interest rate rises further or they may jump back and put their home purchase on hold temporarily due to the increasing rates. According to a new report issued by TD Economics, this is the general reaction that can be expected once the interest rates start to move up.
How Mortgage Rates Fluctuate
This model by TD projects some interesting figures. For every percentage point that the interest rates go up, the listing sales also go up by 6 percentage points immediately. The rush is on for people that want to lock in their mortgages as fast as possible in fear of further rising rates.
After this initial rush, a decline of 7% can be expected in the following months. When all of these figures are crunched, the impact overall is a decline of 1 percentage point for every increase in the rates of interest by 1 percentage point. This impact can be considered permanent.
How Timing Can Be Affected in Mortgage Rates
The timing on when the increase in interest rates occurs can also impact this TD model. As things are now, anyone that is looking for a new home should be reviewing the different types of mortgages available in order to decide on the best mortgage type that will fit in best with their financial situation. The choice between a variable or a fixed-rate mortgage will depend on many different things such as how much cash flow is expected in the future and how high interest rates are expected to rise in the coming years.
Mortgage Rates and Fixed and Adjustable-Rate Loans
Mortgage rates have a direct impact on the budget of someone who is looking to purchase a home. When mortgage rates are low, buyers can work with a bigger budget than if rates are high. Fixed rate mortgages stay the same throughout the life of the loan. This means that if a fixed mortgage is secured at a low rate, the borrower pays the same amount of money every month until the mortgage is paid off. Adjustable-rate mortgages fluctuate, and this is not a good option for borrowers that are on a tight monthly budget and don't have the funds to deal with a mortgage payment that increases. An adjustable-rate mortgage may start off low, and is beneficial to those who don't have the best credit score. Once an adjustable-rate mortgage gets too high, it's always an option to refinance the loan and secure a fixed rate mortgage instead. Adjustable-rate mortgages tend to rise within a few years and can be detrimental to home ownership.
If you're thinking about purchasing a new home here in the city in the near future you should get connected with a Calgary mortgage broker as soon as possible. He'll be able to walk you through the selection of mortgages available and help guide you towards making the best choice based on your present and projected future finances.