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Home prices hit (another) all-time high.

In January 2022, home prices are up 28% over this time last year.

They were already high. But as the central bank looks to begin rate hikes (soon?), low rates and high demand have made some Canadian home buyers feel more like they're chasing the sun.

What do 'lit' home prices mean for your home affordability?

$825,800. That's a new high for the composite benchmark house price in Canada, according to the latest Canadian Real Estate Association (CREA) stats. This amount is what someone would shell out for typical housing across Canada. It's over 3% higher than last month, and over 28% higher than last January (Better Dwelling, Feb. 15, 2022).

Just when you thought home prices wouldn't go higher? They did.

For first-time home buyers, or those looking to buy again after their own 'record-price' home sale, lofty prices in many Canadian markets are making buying a home more and more expensive.

So if you want to buy a home to live in, that means you may need to look for more affordable markets, save up for more down payment, budget for higher mortgage loan amounts — and save money where you can.

Buyers are being drawn to more affordably-priced markets.

Prices may be at an all-time high, but so are buyers' dreams to get a home. With historically-lower rates still at hand, they're looking a little closer at the higher-value options still out there.

Shunning uber-priced markets (like the Vancouver and Toronto areas), some Canadians are tracking down 'more bang for their buck,' even if that means moving provinces.

Calgary is now one of those markets, where home buyers are "flocking to value," according to Matt Forbell, long-time realtor. Calgary is a fresh example of renewed interest in both the city's amenities and in finding more house, for less cost. "In just the past few weeks," he says, "home sales have gone from pretty normal, to now fielding intense bid competition, including no-condition and even bully offers. There's local interest, but many now are from out-of-town."

How long will it last? Matt sees this uptick as "the most frenzied market activity Calgary has seen since 2012, and it may be sustained for a while yet, with plenty of good value still on the books."

Will other prairie markets catch the sun to appeal to first-time or next-time buyers when looking for more affordable dream homes? Considering the higher-priced alternatives in some markets, it's worth considering.

How might rate increases affect home prices?

Economists and financial experts are looking to future rate hikes to pour cold water on speculative buying (investors) and the current 'FOMO,' rush-to-buy pressure, to give new and existing housing inventory a chance to catch up to demand.

"All buyers see is a lack of inventory, and their last opportunity to buy a home. Ironically, the lack of inventory is expected to be resolved when home price growth slows."
Better Dwelling, Feb. 15, 2022

But if home prices eventually trend lower, interest rates will likely be higher than they are now. The question remains whether expected rate increases — from 0.25% now to at least a predicted 'neutral' overnight lending rate of around 2.0% — will be enough to bring home affordability more within reach over the next couple of years.

High inflation is affecting new home pricing.

Inflation just clocked in at 5.1%, a 30-year high — another factor that is impacting home-buyer purchasing power. Supply chain issues combined with a new-home building boom is resulting in increasing prices for supplies, such as lumber. Noted in the Financial Post (Feb. 16, 2022), the replacement cost of a home is 13.5% higher compared to this time last year, "outweighing the disinflationary effect of lower mortgage costs."

The mortgage stress test helps you prepare for what you can afford.

To get a mortgage in Canada, you first need to qualify at the federally-set stress test mortgage interest rate, regardless of the actual (best) rate finalized for your mortgage term. This required 'higher-rate' qualification is intended to provide home buyers with a 'buffer zone' so that they can still afford payments if rates increase (which, of course, they likely will).

Our expert True North Mortgage brokers also work with you to help you 'buy within your means' for your pre-approval and future mortgage-affordability, plus can provide better mortgage products (such as no hidden fees or funny restrictions) to save some cash.

Your income sources and credit score are important factors to consider when buying a home.

To get your best-possible rate for lower mortgage payments, lenders look at your overall financial health. Do you have a steady source of income? Do your debts adversely affect your income-to-debt ratios? What is your credit score? We can explain how lenders view your financial details for both your final rate and mortgage loan amount, and can offer great advice if you'd like to make changes in any of these areas.

The amount of your down payment can aid your affordability.

Having a down payment of at least 20% means you can qualify for a conventional mortgage that doesn't require default insurance. The higher your down payment, the lower your mortgage amount and monthly payments – which may help you better afford a home. To increase your down payment, you may be able to access your RRSPs (first-time buyers), forego a holiday or other major expense to save more, or accept a gift from a family member to put towards your home.

Are extended amortizations an option to help you better afford mortgage payments?

Standard amortizations for high-ratio mortgages are 25 years. For conventional mortgages (down payment of 20% or more), some lenders may provide an extended amortization option to stretch out your mortgage loan amount over more years. This choice will lower your monthly payments for more budget space — though you'll pay more in interest costs.

You can run the numbers with our helpful calculator here.

Get your best rate and great advice to save on your mortgage.

Our expert brokers pass along a volume discount to lower your rate, plus we can offer better, more flexible products that won't cost you more later, when you least expect it. Every situation is unique, and we pride ourselves on finding the perfect fit for your financial goals.

Now with over 15,000 client reviews — we're all about you, not the lender. Talk to us about saving your money.

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