Are 2022 Interest Rates Going to Skyrocket?

It's no secret that interest rates had been at an all-time low. and a big question that we get is where are interest rates going, what happens if the increase of the home price is gonna drop, or we're gonna see the market crash? So today, I brought in my two favorite mortgage experts to help answer a little bit on what's going on in interest rates.

Today we have our two favorite mortgage experts, Mr. Eric Fabien and Mr. Marc Menard, from Ottawa Mortgage Shop.

Kevin: Where is the current rate right now?

Eric: The rates right now are very low still, if you're looking at a five-year fix, it can go as low as 2.49. If you're looking at a five-year variable, you can get a five-year variable right now for 1.05%. So a big gap in between both, but still very aggressive rates out there.

Kevin: And what are the rate differences between a 5% down or 20% down?

Eric: That's a good question. So when we're putting less than 20%, so 5% 10% down, because we have to go through a CMHC and mortgage insurer, the rates are typically a little lower than if you were putting 20% downpayment. The rates right now 249, 1.05, or based on 5% 10% downpayment. When you're putting a 20% down payment, the rates go up a little bit. So you'd be looking at 269, 2.1. Sorry, on the variable side 1.25. So a slightly a little higher, but still very aggressive rates.

Kevin: Okay, and what if it was unit fixed.

Eric: So fixed-rate, obviously, when you sign up for a one year, two years, three years, four years five year fixed, you know, that rate is set for the entire period. So there are no fluctuations, there's peace of mind, as opposed to a variable rate, where if the Bank of Canada decides that they're gonna increase the rate, your rate is going to go up, your payments are going to change. That's why you're going to see more aggressive in the variable rate, because they understand that, you know, coming forward, you know, you're going to see rate increases. So they want to give you that comfort level, the big thing as well is on the penalty. So if you wanted to get out of your mortgage, on a fixed-term, it's a little bit more complicated. It's called IRD. So basically, they take the discount that you received from your rate at signing, the interest rate that it is at that time, and they calculate it and make a penalty for you and they can be quite high, it can go up to $10,000 $12,000, the variable rate is three months interest only. So a lot more flexible in that sense. It could be, you know, $2,000 to get out as opposed to 12,000. So it's a big difference, a little bit of a more of a gamble on the variable because we don't know what the future holds. But still, it's one of the I would say 90% of the race that we sell right now is the variable-rate because it's so aggressive. And it gives you that flexibility.

Marc: The gap has never been bigger, typically, fixed rates in the past, we'd have a difference of point five, maybe between the fixed and the variable. Right now we're at over 1%. So the gap is huge. So even if the Bank of Canada does increase a couple times, you're still ahead for now

Kevin: That's a really good answer. I think anyone watching it's gonna appreciate that. But now for the big question. Where do you guys see the REITs Heading for 2022?

Marc: Yeah, that's the million-dollar question for sure. I mean, there's no specific crystal ball. But, you know, if you talk to, or if you listen to economists, and the Bank of Canada and the bond markets are and all that stuff, you can sort of seeing that fixed rates are going up slowly, and they haven't been for a few months. So just by a few basis points here and there, maybe once a month type of thing. The variable rate, however, hasn't changed, if anything, it's dropped. And a lot of people are predicting that there might not be a rate hike by the Bank of Canada for you know, potentially up until Q3, with the new variant that's coming around right now. It's hard to say. So basically, it's going to depend on the inflation, the inflation currently is at 4.7%. And that's the highest it's been in 18 years. So once the inflation starts going down, maybe closer to 2% then we can start probably seeing some rate hikes so crystal ball nobody has it. It would be a lot of rich people here but that's kind of what it looks like. Yeah.

Kevin: Okay, so I know the biggest question on my buyer's mind is, you know, what does that mean for home prices? Right? Like what would you say to someone who's looking to wait maybe to see the increase the interest rate increase to see home prices drop?

Marc: Right so it's kind of you know, a double-sided sword I guess. So yes, you're waiting for house prices to decrease if you know, the economy goes back to normal kind of thing, but at the same time, If that happens, which again end up happening is that means that we're getting closer probably to that 2% inflation rather than the 4.7% I was talking to you about. So I have an example here. So if you were to purchase today for $500,000, but you're sitting back saying, You know what, I'm gonna wait till the market cools down or goes down a little bit, I'm gonna wait till that same house is $450,000. Let's just assume there's a 1% rate difference between then you know, so let's just say rates are 2% today, and 3% at that point, so I just calculated quickly here. So your current mortgage payment of 500,000 would be $2,117. And you waited for the price to go down, and you're now at $2,130 you're actually paying $13 more a month on your mortgage payment, even though the prices went down.

Kevin: And that's not even taking into consideration the principal you'd be paying down already and the money that you're spending on rent.

Marc: Exactly. So if you're able to get into the market now. It doesn't sound like it makes a whole bunch of sense to wait in my opinion.

Kevin: That's really good. Yeah. Thanks a lot for coming in and discussing, guys. I learned a lot. Okay, cool. Anytime appreciate it.