As we enter 2025, Canadians homebuyers and owners will be looking at a myriad of economic and political issues that could influence their decision to review and change their mortgage arrangements.
While our agency does not pretend to be a financial adviser, it’s clear the situation for mortgage holders is changing quickly.
The Bank of Canada has now reduced its key rate for a fifth consecutive time, implementing another 0.5% reduction to take the benchmark to 3.25%.
Money hasn’t been so cheap for more than two years – and that’s great news for folks seeking to upgrade their properties, and investors and first homebuyers.
It also relieves the pressure on homeowners who have been struggling with mortgage costs.
The reason for the mortgage turnaround has been our ability to reduce to 1.9% the post-Covid spike in inflation, which hit 8.1% in June, 2022.
While that’s a great achievement, it has come at a cost.
Our unemployment rate has risen to 6.8%. As any experienced real estate professional will tell you, property values are sustained in part by confidence in the economy and job security.
Financial services firm BMO predicts unemployment will hit 7% in the next couple of months before trending down.
One unknown is the threat of the US to impose 25% trade tariffs.If this occurred, it would put pressure back on the inflation rate, forcing the Bank of Canada to re-evaluate its reduction strategy.
With many factors weighing on us, it’s fantastic to see the housing market rebounding with value growth and an increasing number of transactions. Values are up 7.4% year-on-year, according to November data from the Canadian Real Estate Association.
In the current environment, it’s wise to review your home loan, or re-evaluate the pre-approved mortgage arrangements you’ve made in preparation for buying a new home.
Here are some tips for re-evaluating your mortgage:
Build your Budget: Use an online calculator to get a sense of your mortgage costs. Lenders’ online apps will let you input the amount you wish to borrow, desired mortgage term, amortisation and payment frequency.
Deciding to Change: If you believe your mortgage is now more expensive than the current offers available, you should shop around. You can reduce the length of your mortgage by years, or reduce your payments, if you make the right move.
Fixed or Variable? You can move to a new fixed rate mortgage, so long as you are currently on a variable rate. If you already have a fixed-rate mortgage, you may find yourself contractually locked into your arrangement.
Is Variable Right? There’s no right or wrong when it comes to mortgages. You need to focus on a lending arrangement that suits your needs. Interest should not be your only criteria. Flexibility and portability of your loan may also be important to you.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.