It Doesn’t Matter If Rates are Up

It doesn’t matter if rates go up

It doesn’t matter if rates are up.  I realize that may seem like a strange thing to say. However, it all depends on how you look at the situation.

We have seen low mortgage rates swinging from 1.59 – 3.69% over the past 10 years.  They go up and down like a ripple in the water. At the same time real estate prices have steadily risen. Over the past two years rates have been extremely low due to the pandemic.  The pressure on inflation has now brought us back to rising rates which we have not seen since 2009.

According to CREA as rates rise we are seeing a reduction in pricing in some types of homes and in some locations of 10%+.  As rates may continue to rise and remain over 5% or higher in 2023 we may see further price adjustments.  Of course some in demand properties or locations may not see a significant drop due to a low inventory of properties.  Only time will tell how long we may be in these market conditions.

But it is always better to save money on the price of the home and pay a bit more on interest.  In time rates change but the price you pay won’t. So it doesn’t matter if rates are up.

For example:

Condo priced at $500,000 in July-August 2022 can now be as low as $450,000 in Oct 2022.

$50,000 down payment

Option One – Purchase at $500K with $450K mortgage and rate of 4.59% was $2513 per month.

Option Two – Purchase at $450,000 with $400K mortgage and rate of 5.14% is $2358 per month

At the end of the term for option one you will still have $45,000 more of a mortgage balance than in option two.

Saving the $50,000 up front is better.  So it doesn’t matter if rates are up.

Note – current rates are subject to change so consult with your independent mortgage broker for your specific situation and options