Mortgage markets are fluctuating from time to time, with rates climbing or falling depending on the general state of the economy, laws of supply and demand and other factors that can be extremely difficult to predict. Naturally, prospective borrowers are anxiously observing the movements and recoiling in fear every time the rates start climbing upwards, and home purchase becomes a riskier proposition.
In reality, there is no need to panic because of such occurrences, at least not before you check all the relevant facts and estimate the outlook for the upcoming period. Here are a few nuggets of wisdom that will clarify why most people shouldn’t be overly alarmed when the mortgage rates take a sudden turn for the worse.
Most rate spikes don’t last long
Historically speaking, periods of instability in the Canadian real estate sector are short-lived, and the system swings back in the opposite direction before long in a typical case. Sure, history is next to worthless if you are trying to estimate the duration of the current crisis, but there are reasons to trust that the economic pressure will sooner or later be amortized. Instead of overreacting to a temporary increase in mortgage rates, the better move is to sit tight, wait for the storm to pass and for favourable home loans to become available again.
Bank of Canada holds the reins
In all truthfulness, the mortgage sector is not completely free to follow the logic of the market, as central institutions wield considerable power over its operations, including the mortgage rates. While the government doesn’t mind letting the rates go up when it’s convenient to do so, it wouldn’t be too happy if mortgage loans grew prohibitively expensive for an average citizen. That’s why it’s highly unlikely that rates will continue to spiral out of control without causing an intervention from the Bank of Canada.
Fixed rate mortgage owners are safe
If you agreed to a fixed-rate loan, your monthly obligations won’t change even if the rates skyrocket in the meanwhile. However, citizens in this situation might still suffer some negative consequences of the market instability, since it will be very expensive for them to renew the loan and buy a bigger house. On the other hand, borrowers with variable-rate loans will see an increased bill for the time being, although this won’t be a back-breaker if the situation normalizes after a couple of months.