Low-Interest Rates – A Positive Factor in Home Buying Decision

There’s no question the housing market in Calgary is challenged these days with the economic downturn caused by low oil prices and the COVID-19 pandemic. 
But for potential homebuyers, a low interest rate environment is one of the positive economic factors in helping them make a decision when it comes to what is likely to be their biggest financial purchase in their lives.
“The low rates along with price declines are helping prevent a more significant pullback in housing demand and are likely contributing to some of the improvements recorded in the detached sector,” said Ann-Marie Lurie, Chief Economist with the Calgary Real Estate Board 

The Bank of Canada issued three rate cuts in March, pushing mortgage rates to an all-time low in order to assist with the economic effect of the pandemic.

“We’re in a historically low mortgage interest rate environment, and this helps give people the push and confidence to borrow money. It’s a great time to get into the housing market. Our low interest rate environment means three things – it makes it more affordable for people to buy a home; more people may buy a home, which can increase the number of homes sold; and current home owners may look at refinancing and taking equity out of their homes at lower rates to pay off higher interest debt or home renos,” said Salimah Nanji, RBC Mortgage Specialist.

“The traditional spring market has been delayed to the fall. The uncertainty when COVID hit, along with historically low rates have moved buyers to the fall in material numbers. Fixed and variable rates are now in a similar range. There is no prediction for rates to increase anytime soon, and it’s a great time to get into the housing market.”

Throughout the country, real estate brokerages deal with specific mortgage specialists at each bank to facilitate a transaction. In Calgary, RE/MAX Real Estate (Central), for example, works closely with Barry Gehring and John Barlow, RBC mortgage specialists.

Variable mortgage rates had been increasing since May 2018 reaching the highest point in January 2020 but there has been a steady decline since March. Fixed rates were on the rise from April until December 2018 and started to decrease in 2019, and through 2020.

Martin Kajuk, Business Development Manager with Dominion Lending Centres, Equity Central, said mortgage rates are at historical lows due to the pandemic. 

“Right now, our brokerage, DLC Equity Central, can offer a five-year fixed mortgage interest rate at 1.69 per cent and our variable mortgage rate is prime (2.45 per cent) minus 0.75 per cent. For those that are thinking of buying, now is the time to get serious. Start with a verified pre-approval to lock in your rate and contact your realtor to start looking,” said Kajuk, a close referral partner of the RE/MAX Central office.

“Given the current global pandemic, our recommendation is better to go with a five-year fixed rate mortgage as this will give added security knowing exactly what their payments will be for the next five years. We never know how long these rates will be around, however the communication coming from the Bank of Canada is likely they will be around for the remainder of 2020 and into 2021. The silver lining is that there are opportunities on both the purchase side and the renewal side. If you are a homeowner who currently has a mortgage with a rate over three per cent now is the time to be renegotiating with your lender or transferring to a lower rate lender.”

Robert Hogue, Senior Economist with RBC, said low interest rates are one of the contributing factors to a significant rebound in the market in many Canadian markets in July and August.

He said Canada has been in a low interest environment for the better part of the last 15 years.

“Mortgage rates have remained quite low and kept coming down,” he said. 

According to ATB Financial, the weekly posted rate for a conventional one-year mortgage in the 1980s averaged 12.6 per cent. After hitting 14.25 per cent in 1990, rates came down to an average of 8.0 per cent in the 1990s and 5.8 per cent in the first decade of the 2000s. They’ve averaged 3.3 per cent since 2010.