Canadian homebuyers are well aware that the cost of borrowing is rising — but nearly half aren’t entirely sure what that means for their bottom line, according to a new survey.
Conducted by TD, the poll of 2,000 Canadians found that four in 10 (38%) agree they “are confused about what rising rates mean for them.” And, for those planning to get into the market, that’s a growing concern: 76% of those who indicated they’re likely to purchase in the next year said they are worried about the impact rising rates will have on how much home they can afford.
That hasn’t dampened appetite for homeownership, though. The survey also finds three in five (58%) of existing homeowners plan to take some sort of action within the next year in regards to their home, whether they’ll sell (13%), or renovate (42%). Those in the Ontario market — one of the nation’s most expensive in which to move — were most likely to want to renovate than sell, at 47%.
“Rising interest rates affect all Canadians, especially those who are looking to become homebuyers in the near future, and those up for renewal”, said Frank Psoras, Senior Vice President Real Estate Secured Lending at TD. “In today’s dynamic market, understanding the impact of rising interest rates is critical to establishing and maintaining financial health, regardless of where you are on your home journey.”
As interest rates rise — the Bank of Canada’s current Overnight Lending Rate is 1.5%, and is anticipated to reach a range of 3% before the central bank’s hiking cycle is through — prospective homeowners are having to get more creative to make the most of their spending power. Due to this “rapidly evolving interest rate environment, as many as 30% of survey respondents said they’d be willing to purchase and live in a home with loved ones outside their immediate family.
Another 29% said they’d sacrifice outdoor space if it meant getting into the market, while 26% said they’d buy an overall smaller home.
“These compromises come as interest rates continue to rise and inventory stagnates in markets across the country.” states TD’s release. “With record-low rates being the norm for years, many first time and younger homebuyers are now contending with their first cycle of rising rates, raising questions and highlighting information gaps among Canadians regarding affordability.”
Meanwhile, the survey found that there’s a knowledge chasm when it comes to borrowers understanding their options to potentially increase affordability and cash flow; 52% indicated they are not knowledgeable about home equity line of credit products (HELOCs), and how they differ from a mortgage.
Lastly, one in three Canadians (33%) said they aren’t sure how rising interest rates will impact their ability to renew their mortgage, 40% don’t understand the difference between variable and fixed-rate mortgages, and 26% aren’t aware of potential prepayment charges for selling their home before their existing mortgage term is up.