November 6, 2023

Do You Feel Fearful About the Present Interest Rates?

6 Nov. 2023

Do you want to buy a house but are intimidated by the present interest rates and are unsure of where to begin? Then you are similar to a large number of Canadians. In actuality, though, higher interest rates were required to slow down the quickly increasing pace of inflation that we were witnessing around the end of 2022. So, are you unable to purchase a home as a result of rising interest rates? NO is the response! You no longer need to be terrified of the present interest rates; instead, you need to learn the facts and comprehend what is going on.

We are still quite low, based on this Bank of Canada graph that charts interest rates since 1975. Yes, I am aware that housing costs have increased significantly from earlier times, but let’s face it—so have earnings.

We must examine the whole picture. Everyone is impacted by interest rates in a different way. Because a sizable section of our population, baby boomers, are getting close to retirement and have amassed substantial assets, the interest rates are not as disastrous for them. For those who are purchasing a first home, it could seem like home ownership is just out of reach. Not invariably.

Yes, you have to qualify at a higher rate due to the increased interest rates, which can lower the amount you were hoping to borrow. On the plus side, house prices have dropped in the last two years, so you might not need to borrow as much as you had initially anticipated. First-time homebuyers should just enter the market, is our recommendation. You can afford a mortgage if you can pay your rent!

The mortgage of the landlord is already being paid by you! Instead of searching for your dream house, consider what you can afford as a first step towards house ownership. Savings cannot keep up with the rate at which property values rise over time.

Then, the issue turns to down payment. Are you sufficiently saved? Is it possible for a family member to give you a down payment to get you started? How about turning the purchase of a house into a business partnership with a friend or another couple? Since every circumstance is unique, we would be pleased to discuss your options over coffee.

Assuming you have the down payment saved, this is the moment to lock in your rate and obtain a pre-approval. This guarantees that your interest rate won’t go up over the next 120 days. You can requalify at the lower rate if rates drop. Regarding going through a bank as opposed to a mortgage broker, everyone’s views vary. In my view, a mortgage broker typically offers you a wider range of options, and since every situation is unique, having options usually pays off in the long run.

The most important thing for anyone concerned about the current interest rates is to face the facts about your financial situation. Examine your expenditures. Keep tabs on your expenses for a month. I’ve completed this exercise before, and it was really interesting to see how little amounts of money added up over time. Most people believe they have more money than they do, but upon closer inspection, they frequently discover that there is a significant amount of waste. How often do you go out to eat or grab coffee?

What if you made a few quick trips to the grocery store to pick up a few things and left with a $100 worth of unnecessary purchases? “It was on sale!” is the best response. Go in and save 50% or stay out and save 100% is Mike’s favourite proverb. I’m going to issue you a challenge: for a month, track every dollar you spend in a journal. You’ll soon realise where you can make small changes to achieve big benefits.

I find it fascinating how many people believe they can “time” the market. I believe someone would be extremely wealthy if they possessed that crystal ball. The “perfect” time to buy doesn’t exist. Contemplate a petrol station. You realise you need to stop for petrol on the way to work, but you’re running late, so you’ll do it on the way home. The petrol price in the morning was $1.50. The petrol price is now $1.63 after work. The price of petrol is always changing. As well as the market.