What happened to mortgage rates and the real estate market in 2022 caught everyone by surprise. In fact, it was downright shocking. We started the year with the overnight rate at 0.25% and the Bank of Canada projecting three 0.25% hikes. Well, we ended the year at 4.25% which means we saw 16 of those 0.25% hikes and not three! Inflation soared and the Bank of Canada took a very aggressive stance, continually stating that the fight will not be over until we are back to 2% target inflation.
At the end of the year, we did get some hopeful news. On December 7th, the Bank stated that another rate hike is possible but not definite, a welcome departure from previous statements that said rate hikes were going to happen.
Economists are mixed on whether the Bank will stop at their current rate of 4.25%. If we do see another increase, it will likely be a modest 0.25% on January 25th with another potential 0.25% increase taking the overnight rate to 4.75%. Could it go higher? If we learned anything from last year is that yes, anything is possible. However, most Canadians can’t tolerate significantly higher rates and the Bank of Canada knows the precarious financial situation Canadians are finding themselves in.
While we may see rate hikes stop in 2023, rates likely won’t revert downward until the end of 2023 or 2024 given how high we are seeing core inflation.
So, what’s next for homebuyers and homeowners in Mississauga, Toronto and the GTA? It all depends on your specific situation, so let’s review how various scenarios should be handled:
Should you lock in your variable mortgage? At this point, it isn’t the best move given that we expect rate declines in 2024. The best answer is not the same for everyone, so if you are considering locking in your variable mortgage, please get in touch for a review of your situation and a discussion of the best options for you.
Need to consolidate debt? Debt consolidation mortgages have been an important financial strategy over the years. If you’ve wracked up large credit card bills, you don’t want to pay 19.99% when you could move that debt to a lower rate mortgage. So, what’s changed? Consolidating debt requires a new mortgage and that brings in the stress test, a hurdle many are finding difficult. Additionally, if you currently have a low-rate mortgage, it likely doesn’t make sense to break that mortgage and give up a coveted rate.
Not to worry, there are other options like a second mortgage, which allows you to keep your current mortgage rate and get the funds you need to pay off the high interest debt that is draining your cash flow. Second, mortgages do have a higher rate than first mortgages but are still considerably lower than what credit cards are charging. It’s an excellent short-term strategy. When your first mortgage renews, we can look to roll both first and second into one new mortgage.
Renewing your Mortgage? Those wonderful years of renewing your mortgage at the same or lower rate have ended. It was a great ride but one that history told us would not last forever. We must deal with the cards we’re dealt with and focus on finding the best renewal deal in today’s market.
If you want to move your mortgage for a better deal than what your current lender is offering, you’ll need to re-qualify with today’s tough stress test. Unfortunately, this will limit some people’s ability to move their mortgage to save money. Yes, that doesn’t make sense, but we must live with it. If you can’t move your mortgage, I can help you negotiate with your lender.
Whether or not you can move your mortgage, you still must decide what mortgage to take. The best option is to look at 1 to 3 year fixed or go variable and benefit from those rate declines that will eventually happen. If you go fixed, it’ll be particularly important to choose a fair prepayment penalty lender because breaking your new fixed mortgage could have a very steep prepayment fee should you need to get out of your mortgage. I know all the fair prepayment penalty lenders and believe this to be a very important consideration in 2023.
Can’t make your mortgage payments? It can sometimes be easy to try and just deal with this kind of situation for as long as possible and just get by. But the reality is that you should contact your lender as soon as possible. They have options available that can help because they certainly don’t want you to default on your mortgage. To help your lender needs to hear from you so reach out if you need to.
Looking to buy in 2023? If you are financially ready, then good for you! I believe this could be a generational opportunity to get into the GTA, Toronto and Mississauga housing markets at fantastic prices. Canadian immigration totals have increased, and we have not moved the needle at all on our very tight housing supply. The long-term outlook for our housing market continues to be very positive. Buyers will be in the driver’s seat:
- Crazy bidding wars are over. When you are the only one putting in an offer, you can negotiate!
- You regain the ability to put conditions in your offer. Buying with no conditions was a very tough situation for buyers in 2020 and 2021. Having a financing condition ensures we have the time to get your financing solidly in place. A home inspection is another important condition. If something shows up during the inspection that you don’t want to live with, you can get out of the deal.
- You now need a much lower downpayment for the same house you were looking at last year. And if that house is now priced under $1 million, you can qualify for a lower rate insured mortgage.
Yes, you still must face the stress test to qualify for your mortgage financing. I come across buyers who are struggling with this every single day. There are strategies that can help, like getting a gifted downpayment or adding your parents as co-signors, which adds their financial strength to your application
If you simply can’t find a way to get past the stress test, I have access to lenders that don’t use the stress test. This is one of the advantages of working with a Mortgage Broker. While your rate will be higher, if may only be short term and you’ll gain in the long run through property appreciation and the joy that comes with being in your own home.
Trying to time the market? It would be nice to know exactly when the bottom of the housing market is in. The reality is that it is exceedingly difficult to time the market perfectly. Just keep in mind that 2023 could be a substantial moment of opportunity, especially if you have stable employment. If you are financially ready, be confident in the long-term prospects of real estate and that you and your family will have a prosperous future. Then it doesn’t matter if you found the exact bottom.
Experience matters! When you’re feeling stressed about an uncertain future, that’s when you need the steadiest and most experienced hand you can find. Work with a Mortgage Broker who has excelled in all types of uncertainty, who has worked with thousands of clients, has priority relationships with lenders, and works relentlessly to get the best mortgage deal each and every time.
I have been a Real Estate Professional for over 10 years and my volume puts me at the top or near top of all Realtors in Re/Max Canada. I’m only mentioning this because I have the expertise you need, and I work tirelessly to get the job done, have a stellar reputation, and I have lenders clamouring for more business. Above all, I love what I do and there is nothing I enjoy more than helping my clients get their dream home, save thousands on their new mortgage, and achieve a brighter future through a strong cash flow management strategy.
If you are in Mississauga, Toronto or the GTA and need a new mortgage or just want a frank discussion of your options, please get in touch. I am working the longest hours I ever have so I can give each person the time they need. Let’s have that conversation!