House construction in Lethbridge, AB March 10, 2022. Photo: LNN

By Cathy Gibson

How interest rate hikes could affect home buyers

Mar 10, 2022 | 3:15 PM

LETHBRIDGE, AB — If you’re thinking about buying a new home in Southern Alberta, now is a good time because the Bank of Canada’s recent rate hike could cause interest rates on variable-rate mortgages to rise.

Lethbridge mortgage specialist Ryan Wolfe says it would be wise for potential home buyers to lock in a rate-hold soon.

“People who are thinking about buying in the next 120 days should be talking to their mortgage professional about a rate hold, an interest rate hold. So if rates go up, they can lock into a rate that’s being offered today to protect themselves and shelter themselves somewhat against future rate hikes.”

The Bank of Canada increased its benchmark rate from 0.25% to 0.5% on March 2, 2022, in the first hike since it slashed its rate near the beginning of the pandemic. That benchmark rate hike is spurring financial institutions to raise interest rates on variable rate mortgages.

The increase has left some homeowners and potential home buyers concerned about what it could mean for them.

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Wolfe says the slight increase shouldn’t have a big impact on most peoples’ affordability threshold.

“That bump does not alter anybody’s buying power. A person who qualified for a $200,000 mortgage yesterday, still qualifies for a $200,000 mortgage today, regardless of the rate bump. So, it’s not altering peoples’ ability to buy, or our ability to approve people, so I think that’s a key thing for people to understand.”

Wolfe says one thing people should consider, however, is their comfort level with fluctuating payments.

“What we need to be conscious of is that when people see the payment that they’re agreeing to, that it’s within their budget, and that it’s comfortable for them, especially if they’re choosing the variable rate. Do they understand the potential for their rate to go up, the potential for their payments to change, and are they in a position to absorb that, and kind of ride the ups and downs, which are going to come? I mean, this isn’t going to be the only rate bump.”

The Bank of Canada states that “as the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further. The next scheduled date for announcing the overnight rate target is April 13, 2022.”

READ MORE: Bank of Canada hikes key interest rate

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