The most important thing experts look at when predicting the housing market in Canada for 2024 is interest rates. The Bank of Canada has been raising interest rates since March 2022. These higher rates have affected many people across Canada. Some effects are good, like lowering inflation, while others are not so good, like making mortgages more expensive.
What to Expect from Interest Rates in 2024
Even though interest rates are high now, they won’t stay that way forever. Mortgage interest rates are directly affected by the Bank of Canada’s policy interest rate. We asked mortgage expert Angela Calla, who wrote The Mortgage Code, if the Bank of Canada will raise rates in 2024, lower them, or keep them the same.
Angela thinks that if inflation stays close to the Bank of Canada’s target of 2%, mortgage rates could start to drop in mid-2024. But since nobody can really know what will happen, she suggests being careful. “Plan for the worst and hope for the best,” Calla says.
How Will Higher Rates Affect Your Mortgage?
Many people got lucky with low mortgage rates in the early 2020s. They bought homes when borrowing money was cheap and locked in their rates for several years. Now that rates have gone up (the lowest rate was 1.38% in January 2021, but today it’s 5.19%), many Canadians will have to renew their mortgages at these higher rates and face bigger monthly payments.
Between 2024 and 2025, around 2.2 million Canadians are expected to renew their mortgages. That’s almost half of all mortgage holders! Because these renewals will happen at higher rates, monthly payments could go up by 30 to 40%. To get ready for these rising costs, Calla suggests shopping around for the best mortgage rate instead of just accepting the first offer from your lender. “This will help you find the lowest borrowing cost and protect your credit score,” she explains.
If you have to renew your mortgage in 2024 and can’t handle the higher payments, you have some options. You could add rental income, extend your loan time (called amortization), or think about a reverse mortgage.
Fixed or Variable Rate: What’s Best for You?
Deciding between a fixed or variable-rate mortgage is a personal choice. It depends on what you want and how much risk you’re willing to take. Fixed-rate mortgages are stable because the rate doesn’t change, and you will pay the same amount each month. However, if you want to sell your home before your mortgage term ends, it could be more expensive to break a fixed-rate mortgage.
“Breaking such a mortgage for market or lifestyle changes can lead to a penalty called an interest rate differential (IRD),” says Calla. This penalty could cost you tens of thousands of dollars, so it’s important to think about this if you plan to sell your home before your mortgage term ends.
On the other hand, variable-rate mortgages are more flexible. But your mortgage rate can change, meaning your principal payment and sometimes your total monthly payment could go up or down.
“When Canadians are choosing between a fixed or variable-rate mortgage, it’s important to weigh the risks and benefits of each option,” Calla explains. If you’re not sure, talking to a mortgage specialist is a great first step.
Summary of Key Points
- Mortgage rates may fall in the end of 2024.
- If your mortgage is renewing in 2024, be ready for higher rates.
- Shop for the best rate and terms with a mortgage broker.
By keeping these things in mind, you can make the best decision for your mortgage in 2024.
