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Canada May De-Regulate To Engineer Soft Landing In Housing Market As Rates


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https://www.google.ca/amp/s/www.thestar.com/amp/business/2022/05/12/canadian-bank-regulator-hints-it-could-change-mortgage-stress-test-rules-before-years-end.html

 

Canadas extremely hot housing market is already showing signs of major cooling since the rate hikes began especially in the most expensive markets like Toronto and Vancouver.

 

Since interest rates are set to rise as much as another 2% from current levels (on top of what they already rose by) some worry this could finally trigger a crash. But Canada's Mortgage and Lending Regulator has a tool at its disposal it has hinted it may use to install stability.

 

Canada years ago introduced a 2% premium stress test, meaning you had to qualify for your mortgage at a 2% higher interest rate than you were actually offered so that you had a buffer and could still pay your mortgage if rates went up without going delinquent. It was also meant to prevent market from overheating even more than it did by restricting people's purchasing power

 

As interest rates rise from ultra low towards more normal levels, the risks of major rate increases decrease reducing the need for a stress test. The Regulator hinted that reducing or even removing the regulation all together will restore qualifying purchasing power offsetting real rates in the market acting as an offering stabilizer

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Korok
Posted (edited)

Wondering if I should lock in a 4% fixed rate :saladga: 

Edit: Currently hovering 2.75% variable

Edited by Korok
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Economy
6 hours ago, Korok said:

Wondering if I should lock in a 4% fixed rate :saladga: 

Edit: Currently hovering 2.75% variable

Are u renewing soon? Are u in Canada? Hmmm....

 

Tbh if interest rates were to peak at 2.5% that means your variable mortgages would probably peak around 4.25% (as variables tend to go in tandem with the Central Banks Trend Setting rate)

 

But it may be some time before it gets that high and probably won't last too long up there before coming back down and in the meantime until it gets there you are paying more

 

Obviously you know your situation best and risk tolerance and no one should tell you what to do

 

but if I had a mortgage renewal coming up soon, personally I think at this point I'd stay with the variable... I feel like although the variable may briefly surpass the fixed if you look at a 5 year fixed term (is the 4% for 5 years) in general across the board it's very likely that the average variable rate will be lower most of the time than the fixed. And most of the time it is that way. Banks take advantage of people's anxiety of uncertainty to charge a premium for fixed. It's rare the rate they offer you for fixed ends up saving you money for the term as a whole even if due to rising rates for a brief time the variable surpasses the fixed

 

But again this is a general rule. There are never any certainties with these things

 

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Korok
Posted (edited)
1 hour ago, Economy said:

Are u renewing soon? Are u in Canada? Hmmm....

 

Tbh if interest rates were to peak at 2.5% that means your variable mortgages would probably peak around 4.25% (as variables tend to go in tandem with the Central Banks Trend Setting rate)

 

But it may be some time before it gets that high and probably won't last too long up there before coming back down and in the meantime until it gets there you are paying more

 

Obviously you know your situation best and risk tolerance and no one should tell you what to do

 

but if I had a mortgage renewal coming up soon, personally I think at this point I'd stay with the variable... I feel like although the variable may briefly surpass the fixed if you look at a 5 year fixed term (is the 4% for 5 years) in general across the board it's very likely that the average variable rate will be lower most of the time than the fixed. And most of the time it is that way. Banks take advantage of people's anxiety of uncertainty to charge a premium for fixed. It's rare the rate they offer you for fixed ends up saving you money for the term as a whole even if due to rising rates for a brief time the variable surpasses the fixed

 

But again this is a general rule. There are never any certainties with these things

 

Thanks for this :) Will take it into account. I have to finalize within the next month or so. I was likely going to opt in for variable, but the bank was definitely trying to pitch their fixed rate to me. :rip: And yes, Canada. 

Edited by Korok
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