June 30, 2022
Real Estate News
RYPM
Canadian homebuyers are well aware that the cost of
borrowing is rising — but nearly half aren’t entirely sure what that means for
their bottom line, according to a new survey.
Conducted by TD, the poll of 2,000 Canadians found that four
in 10 (38%) agree they “are confused about what rising rates mean for them.”
And, for those planning to get into the market, that’s a growing concern: 76%
of those who indicated they’re likely to purchase in the next year said they
are worried about the impact rising rates will have on how much home they can
afford.
That hasn’t dampened appetite for homeownership, though. The
survey also finds three in five (58%) of existing homeowners plan to take some
sort of action within the next year in regards to their home, whether they’ll
sell (13%), or renovate (42%). Those in the Ontario market — one of the
nation’s most expensive in which to move — were most likely to want to renovate
than sell, at 47%.
“Rising interest rates affect all Canadians, especially
those who are looking to become homebuyers in the near future, and those up for
renewal”, said Frank Psoras, Senior Vice President Real Estate Secured Lending
at TD. “In today’s dynamic market, understanding the impact of rising interest
rates is critical to establishing and maintaining financial health, regardless
of where you are on your home journey.”
As interest rates rise — the Bank of Canada’s current
Overnight Lending Rate is 1.5%, and is anticipated to reach a range of 3%
before the central bank’s hiking cycle is through — prospective homeowners are
having to get more creative to make the most of their spending power. Due to
this “rapidly evolving interest rate environment, as many as 30% of survey
respondents said they’d be willing to purchase and live in a home with loved
ones outside their immediate family.
Another 29% said they’d sacrifice outdoor space if it meant
getting into the market, while 26% said they’d buy an overall smaller home.
“These compromises
come as interest rates continue to rise and inventory stagnates in markets
across the country.” states TD’s release. “With record-low rates being the norm
for years, many first time and younger homebuyers are now contending with their
first cycle of rising rates, raising questions and highlighting information
gaps among Canadians regarding affordability.”
Meanwhile, the survey found that there’s a knowledge chasm
when it comes to borrowers understanding their options to potentially increase
affordability and cash flow; 52% indicated they are not knowledgeable about
home equity line of credit products (HELOCs), and how they differ from a
mortgage.
Lastly, one in three Canadians (33%) said they aren’t sure how rising interest rates will impact their ability to renew their mortgage, 40% don’t understand the difference between variable and fixed-rate mortgages, and 26% aren’t aware of potential prepayment charges for selling their home before their existing mortgage term is up.