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Robert McLister: Renovators, refinancers and prospective homebuyers are excitedly Googling mortgage rates and terms
Published 06 September 2024 • Last updated 2 hours ago • 4 minutes reading time
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A “For Sale” sign hangs in front of a house in Toronto’s Riverdale neighbourhood. Photo by Evan Buhler/The Canadian Press Files
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The number of mortgage-related searches on Google has reached an all-time high, surpassed only by the chaotic surge during the pandemic in March 2020.
This is notable because September is the peak month for mortgage interest. Mortgage searches typically peak in March or April, when the spring home-buying season begins.
Something has changed, and that something is the cost of borrowing. Rate cuts are like doughnuts in the break room: irresistible. After the summer lull and three rate cuts by the Bank of Canada, mortgage borrowers are finally tempted.
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But who is behind this rising interest? As we speak, three different people are excitedly Googling mortgage rates and terms.
Innovator
Many of these people are leaving the fixed-interest contracts they signed five years ago, some of which were as low as 2.49 percent.
Others were bobbing around 5.60 percent or higher with variable interest rates — a relic of top-price deals at minus 1.10 percent (approximately), also from five years ago.
Others are abandoning one-year fixed interest rates, which were at least six to seven percent for prime mortgages in 2023. For loans in lower credit ratings, at least one or two percentage points are added.
Some of these borrowers are now facing interest rates that are almost double what they were paying when they signed the loan. Many are praying to the mortgage gods that the Bank of Canada's interest rate easing will ease their interest burden.
If you're among those considering renewing and are well qualified, start with the lowest nationally advertised mortgage rates from the table attached to this story. Use that as leverage with your existing lender, and if they don't play along — and it's worth your time and money — walk away.
Refinancer
According to TransUnion, Canadians are buried under a record $2.41 trillion in debt, with a large minority of mortgage borrowers suffering from payment stress.
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To relieve this stress, hundreds of thousands of Canadians are desperate By incorporating high-interest debt into the home loan, you can sometimes save hundreds or even thousands per month.
Those most burdened signed mortgages in 2021-22 when home prices were skyrocketing. To make matters worse, home values have since fallen from their peak in winter 2022, leaving many without the 20 percent equity needed to refinance.
Then there's the “stress test” rate – those high qualifying rates that lenders have to prove you can handle. At over 200 basis points above your contract rate, they make it much harder for highly indebted borrowers to get approved.
And we must not forget the early repayment penalties that people with less flexible mortgages have to pay to refinance before maturity. When short-term fixed rates fall – and they are now – fixed mortgage rates rise.
Many borrowers scour Google and other online sources to solve these problems and look for the lowest refinance rates.
Unfortunately, many pay attention to the wrong interest rates and believe they can qualify for the best prime loan offers. In reality, people with high debt-to-income ratios or lower credit scores are often referred to subprime interest rates that are at least 100 to 200 basis points higher than Canada's leading offers. Subprime interest rates also come with lender/broker fees that start at around one percent of the loan amount, which prime lenders do not charge.
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Potential home buyers
September and October are typically average months for real estate, each accounting for 8.2 percent of annual sales, says Shaun Cathcart, senior economist at the Canadian Real Estate Association. (In case you're curious, the peak is in May, at 10.5 percent.)
Many people looking for mortgages are looking to buy a home. They are watching fixed mortgage rates fall to a two-year low. They instinctively sense that falling rates, combined with record population growth, will drive up home prices—especially for single-family homes.
Interesting fact: The working-age population growth was 3.6 percent in June. a data record that goes back to 1977. These people have to live somewhere.
There's a good chance the next few months will account for a larger-than-average share of annual home sales as falling interest rates make more homebuyers eligible for mortgages, incomes continue to rise, and confidence grows that the housing market is on firmer footing – despite dire affordability and rising unemployment, which is hitting renters harder than homebuyers.
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But what really motivates buyers to buy is rising prices. That is the greatest psychological motivation of all.
In this sense: “It would not be surprising if, as interest rates fall … housing prices rise,” admitted the governor of the Canadian central bank, Tiff Macklem, yesterday. “That could well happen.”
The new morning of the market
Mortgage growth last year was around three percent, well below the ten-year average of 6.2 percent. But the tide is slowly turning, and the almost record-high mortgage interest rates are a clear sign.
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Currently the lowest national mortgage rates in Canada
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Borrowers could soon experience the lowest 5-year fixed rates in 2 years
If the bond market forecasts hold true, Canada's benchmark interest rate will fall another half a percentage point by year's end, the population will grow by hundreds of thousands more, and housing supply will fail to keep pace. This leads to a potentially decent housing market with fewer indebted borrowers over the next twelve months – until housing prices inevitably start to rise again.
Robert McLister is a mortgage strategist, rates analyst, and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
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Want to know more about the mortgage market? Read Robert McLister's new weekly column in the Financial Post and find out the latest trends and details on financing opportunities you can't miss.
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Mortgage interest rates
The rates shown below are updated by the end of each day and are taken from the Canadian Mortgage Rate Survey by MortgageLogic.news. Postmedia and Imaginative. Online Inc., the parent company of MortgageLogic.news, receive compensation from certain mortgage providers when you click on their links in the charts.
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