Mortgage Rates Canada – July 2022 Update – Canadian Real Estate MORE Affordable

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Thanks for clicking with the bank of canada raising interest rates this month by 100 basis points there is increasing downward pressure being put on canada’s real estate market however there may be some relief in sight as mortgage rates reversed last week with bond yields dropping on news that canada’s inflation rate came in 30 basis points lower than expected

This comes at a time when canada’s real estate market is under increasing pressure with rbc predicting a 23 drop in sales and a 12 drop in the benchmark price by april of 2023 yes and we are grateful to them with canadian home prices dropping and mortgage rates dropping as well at least for now this is changing the affordability for canadian home buyers so i

Want to do today is go over the best mortgage rates compared to last month take a look at how that has changed affordability look at why mortgage rates are dropping in the face of rising interest rates on the part of the bank of canada and then take a look at what to look for next speaking of next we are waiting for june’s real estate data set to be out early

Next week from the local real estate boards we will obviously have updates out on that data on this channel if you want to get those updates make sure you click like and subscribe but for now let’s get into these mortgage rates on to the mortgage rates first up the best insured mortgage rate the insured mortgage rate if you’ll remember that’s where you put less

Than twenty percent down you pay the mortgage insurance and you have a 25-year amortization mortgage rates dropped last week if you’ll remember in may we had a best insured rate of 4.19 that bumped up to 4.99 in june and as of last week it just lowered down to 4.64 8.35 drop since this time last month insured mortgages almost always have the lowest rate as it’s

Of the least risk to the lender as you’ve paid the mortgage insurance so in the event that the home buyer doesn’t pay the mortgage insurance is there to cover any losses most of the losses on the part of the mortgage lender therefore they offer the lowest rate on to insurable insurable is where you put 20 down you don’t pay the mortgage insurance and you qualify

With a 25-year amortization those rates also dropped last week if you’ll remember in may the best insurable rate was 4.54 that shot up in june to 5.39 and went back down last week to 4.99 or 0.4 lower than it was this time last month when you qualify at an insurable rate with that 20 down but a 25-year amortization it allows the mortgage lender to buy insurance

On the back end so they can still insure the mortgage in the event that the home buyer doesn’t pay but the home buyer doesn’t pay for that mortgage insurance that’s so generous of you finally uninsurable rates uninsurable that is where you have 20 down and you take a 30-year amortization or any time you take money out of your home vis-a-vis a refinance uninsurable

Rates are also down although not by very much if you remember in may the best uninsurable rate was 4.74 that shot right up in june to 5.39 and that lowered last week to 5.24 or 0.15 percent lower than it was this time in june so insured rates insurable rates and to a certain extent uninsurable rates are all down since this point in time last month but what has that

Done to affordability if we take a look at the average price in canada in june which was 665 849 dollars if we use minimum down payment requirements a 25-year amortization and we look at june’s interest rate we get a mortgage payment of 3791 dollars however if we use that 4.69 interest rate we see the payment drops to six hundred and sixty dollars so a little

Over one hundred and thirty dollar difference on that average house price in canada but what about looking at the benchmark price the benchmark price that’s the price for the home which contains the most popular set of features in canada the benchmark price in june was eight hundred and nine thousand seven hundred dollars so again if we use minimum down payment

Requirements on a 25-year amortization and a 4.99 interest rate on that benchmark price we get a payment of four thousand five hundred and seventy seven dollars and change now if we take a four point six four interest rate we get a payment of four thousand four hundred and nineteen dollars in change and that’s what we’ve seen for over the past few months with

Affordability changing up and down with the ebb and flow of interest rates the only thing that has been a constant is house prices dropping done in it and though canada’s real estate prices are forecasted to continue to drop for the foreseeable future it’s still far too early to tell the direction that mortgage rates are headed mortgage rates are based largely

Off bond yields that is how much money can be made from the government of canada’s bonds if investors think that inflation has peaked and we are entering into an economic downturn and that the bank of canada is going to be reversing course in order to re-prop up the economy from that economic downturn then we’ll see bond yields fall and mortgage rates will fall

Thereafter mortgage rates are almost always higher than bond yields as there’s no safer debt in canada than government debt so as mortgages are a little bit more risky than government debt they charge a premium for the additional risk however bond investors are a fickle bunch what you’re saying is liable canada’s inflation rate coming in at 8.1 percent only

30 basis points lower than that was expected was enough to shift investors into the mindset that inflation may well have peaked and that they now had to worry about an economic downturn and that the bank of canada would eventually be lowering interest rates in order to reprop up the economy so in summary as inflation came back lower than expected investors are

Expecting the bank of canada to reverse course and as such the yields on canadian government bonds dropped which were followed shortly thereafter by mortgage rates but it’s not clear that these bond investors have it correct and it’s definitely not clear that the bank of canada will be reversing course if an economic recession hits during an interview last week

As we went over on this channel bank of canada governor tiff macklin made it clear that inflation is their number one priority getting inflation back to our two percent target is paramount even if canada does enter into a recession it’s not clear to me at least that the bank will reverse course if we still have a sky-high inflation even if our inflation rate is

Down to say seven percent and canada enters into an economic downturn it’s not clear that the bank will shift focus to the economy to re-stimulate the market i think they’re going to try to get a hold of inflation sooner rather than later and that is going to be their number one focus going forward i think if inflation remains at seven or eight percent the bank

Of canada is going to continue to raise rates which will put more upward pressure on bond yields which will put even more pressure back to put those mortgage rates back up so this very well may have been a blip but mortgage rates are down for now and as such the affordability for canada’s real estate market has increased marginally by only by 100 130 but increase

Nonetheless we’ll obviously have updates out on that affordability and on those prices next week if you want to get those updates make sure you click like and subscribe and thanks so much for watching

Transcribed from video
Mortgage Rates Canada – July 2022 Update – Canadian Real Estate MORE Affordable By Mark Mitchell – Mortgage Broker London Ontario