Buying a home will most likely be your biggest expense, therefore, it will be in your best interest to familiarize yourself with the current residential market trends. This means knowing what the current interest rates are going for and how an increase in rates can affect your affordability.
So, to help give some clarity, your local Ajax mortgage broker, Sean Stewart, has explained what interest rates are and how they can affect your mortgage.
Interest Rates Explained
Interest rates are expressed as a percentage charged on the funds that are being issued to the borrower.
Bank Rate & Prime Rate
The Bank of Canada determines the bank rate also known as the target rate, which is the amount of interest that is charged to major financial institutions for a one-day lending fee.
These companies that are being charged the bank rate, take this percentage and add an additional 2.2% and charge that to their customers. This new rate is known as the prime rate and it directly affects how much the home buyer will be charged. Therefore, whenever the bank rate increases, the prime rate also increases, and the consumer will be charged more. The current bank rate is 1.50% and the current prime rate is 3.70%.
How An Increase In Interest Affects Home Buyers
If interest rates are increasing that means the consumer is being charged more, which directly affects your affordability. Meaning that a home you could afford in the past may be out of your price range now. It is important to understand when these rates are increasing and by how much, so you can adjust your financial plan accordingly and are not having to stretch your finances to the highest possible point.
Talk with your local Ajax mortgage broker so they can review your finances and tell you what type of loan you can qualify for now. They can also see how your finances will be affected if there is a spike in interest rates.
For more information on how a rise in interest rates affects you or to begin your Ajax mortgage application, please contact Sean Stewart at 905-427-9596.