Rising rates can affect your mortgage search

What do I need to know before getting a mortgage now that interest rates are rising?

Buying a home is a big financial investment, and it is understandable that, with rising interest rates, many buyers may be nervous about the cost of a mortgage.

If you are searching for a mortgage, I encourage you to keep a few things in mind.

Make sure you fully understand the implications of high interest rates. Changes in interest rates affect how much money you can borrow from a lender. So, when interest rates are higher, you will likely get approved for a lesser amount than when interest rates are lower.

Rising interest rates also mean larger monthly mortgage payments.

Crunch your numbers. Look closely at your finances to see how much you can afford comfortably for a down payment and a monthly mortgage payment. This will help you identify a price range that is manageable for you.

As you are doing this, you may find the Canada Mortgage and Housing Corporation (CMHC)’s homebuying calculators helpful. These are available on their website and include a mortgage calculator as well as an affordability calculator.

Assess whether a fixed or variable rate is right for you. Variable rates are usually lower than fixed rates, which can make them attractive to borrowers. However, there is always a risk that a variable rate will change over time.

Given that there have been significant fluctuations in interest rates recently, you may want to think about how comfortable you are with an interest rate that is not stable. If your budget is not very flexible, proceeding with a fixed rate may be a better option for you.

Shop around for the best rate. While you can certainly go to different lenders independently, many people choose to consult mortgage brokers. These licensed professionals are experts in comparing the different mortgage options, walking you through the pros and cons, and helping you find the mortgage that best meets your needs.

You can often get pre-approved for a mortgage with a locked-in interest rate prior to looking at homes or signing an agreement of purchase and sale. Mortgage pre-approvals are generally valid for 90 days. If you have not purchased a home by then, you can always re-apply.

Read the mortgage agreement thoroughly. All the paperwork involved in a real estate transaction can be overwhelming, and it is critical to remember that these documents are legally binding once you sign them. Because of this, I highly recommend reviewing everything in detail, asking questions and consulting a real estate lawyer.

As always, I suggest you do your research. A great place to start is CMHC’s website, which has a section called “Buying a Home.” All the best.

If you have a question for Joe about the home buying or selling process, please email information@reco.on.ca.


This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.

Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.

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