Mortgage rates: This will cost butter!

In April 2021, it was possible to negotiate a 5-year mortgage in the Quebec mortgage market at an interest rate of just 1.9%.

If you manage to negotiate a new five-year mortgage today at 4.9%, you’ll breathe a sigh of relief. And this despite the fact that the quotas have risen by more than three percentage points within just a few semesters.

I don’t want to discourage households who need to negotiate a new mortgage, but you should know that today it costs a lousy meal compared to what it cost before interest rates rose sharply.

For each $100,000 tranche of the mortgage loan, the three percentage point increase equates to an additional monthly amount of $157.29, or even $1,887.48 over a year.

Specifically, here is the annual surcharge you will have to pay if your mortgage is to be negotiated or renegotiated compared to April 2021:

  • $200,000: +$3775
    (+ $314.58/month)
  • $300,000: +$5662
    (+ $471.87/month)
  • $400,000: +$7,550
    (+ $629.16/month)
  • $500,000: +$9437
    (+ $786.45/month)
  • $600,000: +$11,325
    (+$943.74/month)

A cold, but…

After the spectacular rise in mortgage rates, the housing market cooled while overall sales fell 16% in the first eight months of the year. But that hasn’t stopped the median home price from continuing to rise.

According to the Association professionnelle des courtiers immobiliers du Québec, here is the “cumulated” median price for the first 8 months of the year and in brackets the increase over the median price for 2021.

All of Quebec

  • Single Family Home: $425,000 (+19%)
  • Condo: $372,000 (+16%)

Montreal metropolitan area

  • Single Family Home: $560,000 (+15%)
  • Condo: $400,000 (+13%)

Quebec region

  • Single Family Home: $344,500 (+12%)
  • Condo: $230,000 (+12%)

North Shore of Montreal

  • Single Family Home: $500,000 (+21%)
  • Condo: $340,000 (+28%)

South Shore of Montreal

  • Single Family Home: $565,000 (+15%)
  • Condo: $370,000 (+19%)

A growing number of analysts expect Quebec house prices to fall by 5 to 15% due to the rise in mortgage rates and their extremely negative impact on households’ personal finances.

This is all the more plausible given that the Bank of Canada will have to continue the credit crunch by raising interest rates again until the end of the year. And that the US Federal Reserve also feels compelled to raise its key interest rate significantly in an attempt to curb the galloping inflation that is raging in the US.

First purchase

We agree that the bar has become very high for households looking to purchase a first home or condo. Not only is the price very high, but mortgage rates have risen above their pre-COVID-19 levels.

The official interest rate for the five-year mortgage term is 6.14%.

For a $100,000 mortgage tranche amortized over 25 years, the monthly repayment of a mortgage at that rate is $648.15. This equates to a payout of $7778 per year.

As an example, let’s take the average price of a single-family home in Quebec: $425,000.

A minimum 20% down payment is required to avoid paying a mortgage insurance premium or Canada Mortgage and Housing Corporation (CMHC) insurance on top of the mortgage.

Buying a $425,000 property requires a $85,000 down payment. This leaves a balance of $340,000 to pledge.

At the current rate of 6.14%, the repayment of such a mortgage is $2,204 per month, or $26,445 per year.

Add to the cost of the mortgage yearly local taxes, school taxes, home insurance, maintenance costs, etc. etc.

Much luck !

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