Canada is currently facing problems with inflation as interest rates have peaked to a 30 year record. This has caused a lot of commotion in the market and now The Bank of Canada has come forward to outline a few of the vulnerabilities of Canada’s financial future.
In a big statement, The Bank of Canada made a prediction that some of the mortgage payments may see an increase of up to 45% by the year 2025. The Bank of Canada conducted a review of the financial system and released a report on 9th June 2022. The review report states that Canadians are likely to face a problem with housing affordability.
In a simulation run for the review, it stated that those who took out a mortgage in 2020-21 would face massive trouble in the form of monthly mortgage payments, seeing an increase of up to 44% with their 2025-26 renewal. If their mortgage to income ratio is high, this rate could climb to 45%.
Even those with fixed rate mortgages could see a jump of up to 24% with their mortgage renewals and that rate could reach 26% if their mortgage to income ratio is considered high.
This is some troubling news for everyone, as a lot of people had bought property with mortgages when the interest rates dipped to record low in 2020. The housing market was climbing slowly and regularly until pandemic took the world by storm and every economic system halted. This was the first time, for what we consider our modern world, stood completely still. To kick start the economy back into action, the Canadian government reduced interest rates, invoking everyone’s attention towards real estate market.
The housing market saw a frenzy that was never witnessed before. Everyone wanted a piece of the low interest pie. The overcrowding in the housing market meant that demand was always going to be higher than supply and this was always going to result in price hikes. Even people with properties started thinking about selling, to take advantage of the recent price hikes and started overpricing. Even then people kept buying because of the record low rates.
Now this news brought to light by The Bank of Canada will financially trouble all these buyers who were never prepared to see such steep interest rate increases. People are already worried as to how they are now going to survive this inflation wave. With limited incomes and ever increasing interest rates, more and more people will be financially suffocated to sell off their properties.
A good mortgage broker is crucial in such circumstances. As they have the skills and experience to tackle such intricate challenges and to survive financial turmoils. They can assist their clients to successfully navigate these troubling waters to keep afloat and have a comfortable future. They are the professionals that can help consumers ride this wave of inflation, by helping them make the right decisions. Decisions like choosing between fixed rate and variable rate mortgages, when to buy and so on.
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