Impact of Rising Interest Rates

It seems as though it won’t stop.  Canadian interest rates have now climbed to 5% over the past week.  This is remarkably high and will have an effect on everyone. 

The first group is obvious.  Someone is trying to buy a new house.  It could be a first-time buyer, an upgrade or move to an area with a better school system, or a downsizing, or the result of an employment relocation, or property for flipping or to rent to someone else for passive income.  Whatever the reason, it is a new loan and all the hoops and hopes that go along with it.  Qualifying will be more difficult, and the possibility of locking yourself into a high-interest rate for even a few years can be daunting.

Navigating Economic Challenges

The next segment is those with variable interest rates on their mortgage.  Studies show that a large segment of homeowners are having a difficult time meeting their mortgage payments at this point.  As the interest rates increase and the monthly payment along with it, it will force even more economic hardships on owners and their families. 

Renters will also feel the impact.  If the property owner is still in the process of buying the property being rented, the higher mortgage interest rate will force that owner to increase the rent payments.  The trickle-down effect is that the renters who are desperately trying to save for their own home will have less discretionary income for that purpose. 

In a similar vein, renters feeling the pinch will relocate, leaving the apartment or house vacant.  This is an expense for the owner.  They will need to clean the premises and possibly update or replace damaged appliances or structural issues.  The property will need to be listed, applicants vetted, and other sundry actions.  The owner may also see this as an opportunity to increase the monthly rent, spiralling the situation further.

Investing in Real Estate

Finally, we look at investors.  Those folks who flip houses for a living or those who are interested in some passive income, especially in retirement.  A rehabber or flipper will need a loan to purchase the home and carry it to the sale.  The investor is in the same boat in that the property will undoubtedly need some work before it is available to rent.  Each has a lag time between the purchase and the letting.  Even a short-term or swing loan will carry a hefty interest rate.  That means the flipped sale price will increase, or the owner will increase the amount of rent they intended to ask for. 

While all of this may seem disheartening, there are still good deals to be had.  Working with a company like will give the potential buyer the advantage of a company that stays on top of the latest events and can offer insights on ways to accomplish goals.  One of the edges they can afford is the wide range of lenders to which they have access.  It is certainly beneficial to all concerned to investigate these opportunities and plan for the future.