Now, how to shop for your mortgage?

The Bank of Canada raised its key rate just as peak mortgage season begins. The financing costs therefore look higher than expected for those looking for a new mortgage around.

Worse still, some families looking for a home with their banker’s blessing run the risk of no longer benefiting from the loan if they don’t close a deal quickly.

Here are five tips for maneuvering in this market.

1. Race against time for first-time buyers

“Right now, many of my clients are panicking. They have been looking for a house since the autumn, they participate in auctions without success. In July I have many in this situation who will no longer qualify, I had to warn them “, reports Ryan La Haye, mortgage broker with the Planiprêt brand.

To obtain the necessary financing, a borrower must demonstrate that he complies with debt ratios based on an interest rate higher than that granted by the mortgage lender. This is called the “stress test”.

For this test, banks use the higher of these two rates: 5.25% or the rate obtained, plus 2%. Those who have had a frozen rate in recent months have qualified at 5.25%, but their guarantee mostly expires in July. Interest on a five-year fixed loan has since risen to fluctuate between 3.5% and 4.5% and is expected to continue to rise.

When the guarantee expires, these buyers will have to retrain with rates of 6% or even 7%, and many will lose some of their financing.

“They may simply benefit from a floating rate, but their budget will suffer as interest rises,” warns Ryan La Haye.

The broker does not recommend this option, it would be wiser to postpone your project or reduce its importance.

2. Book your fare in advance

Those who are considering buying a home or homeowners whose mortgage is nearing the end of the term should book a rate now, if they haven’t already.

“Lately we have seen the cost of fixed rate loans increase every two weeks, it’s unbelievable,” exclaims Hugo Leroux, broker at Hypotheca.

The vast majority of lenders will guarantee a rate for a period of 90 to 120 days, the mortgage broker says. When you book in January, you can get a six month delay, as many transactions are authenticated in July.

If you are stressed about not finding your home quickly and if you are afraid that interest will rise again, Desjardins and the National Bank can freeze the rate for a year, in exchange for a premium.

3. Variable rate or fixed rate?

Classic! In a normal context, when the five-year fixed rate exceeds the floating rate by 0.75%, the latter remains a safe choice. But we are not in a normal context. We know in advance that the key rate will rise by at least 1% within a year.

Unless you get a 1.25% advantage over the fixed, the “variable” looks less attractive. When we look at the issue, we need to keep in mind the possibility that rates will fall a bit before the end of the five-year period.

4. Should the rate be fixed?

The variable rate loan retains an important advantage: you can break the contract with little expense. Holders of such a mortgage may be wondering whether to turn to a fixed-rate product before interest rises further. The conversion can be carried out without changing lender, without penalties.

It all depends on the underlying negotiated conditions, but according to the two brokers consulted for this section, in most cases it would not be advantageous.

“Last year, lenders were offering big discounts on the prime rate. Even after this week’s hike, they are paying between 1.90% and 2.10%. We don’t subscribe for a fixed rate of 3.5%, “insists Ryan La Haye.

5. Think outside the box

Now is a good time to consider a shorter mortgage term, according to Hugo Leroux.

“Some lenders offer good discounts over three-year terms,” ​​he says.

On the rate displayed by the banks, the difference can be as high as 0.70%!

We don’t know what the market will look like in three years, you might say, but that’s more than enough to bring inflation back under control and return to a more favorable mortgage environment.

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