The process of home buying has become easier over the last few years. Low and manageable mortgage rates have helped Canadians in buying their own homes within their budget. However, since 2008 the price of average home in Canada has increased by 60% while the five-year mortgage rate has fallen by 37%.

When it comes to finances, what goes down tends to rise therefore, as a result of changes made by government in mortgage rules; we can say that mortgage rates are finally going to increase.

Most of the people emphasize on Bank of Canada’s mortgage rates or Federal Reserve’s Funds rates both of which are short-term lending rates. Whereas it is the five years Government of Canada’s bond yield rates which causes mortgage rates to go up or down. This is because most mortgage terms are for five years and companies raise the money they lend by selling GICs, deposit notes and mortgage backed securities with a similar maturity.

Variable mortgage rates, however, can be priced at the prime rate or at a discount to the prime rate, which is set by financial institutions.

In year 2016, Government of Canada took interventions to cool the hot housing market conditions so that home buyers do not involve them into a debt which they could not afford.  Therefore the government introduced insurance restrictions and bank capital requirements, including ban on refinances, extended amortization and $1 million plus properties.  These changes are creating difficulties for lenders to scrutinize the mortgage and for buyers in the form of high mortgage rates.

Also buyers are required to pay a down payment of 20% or they need to pass the Bank of Canada’s five years fixed rate. A combination of all these changes causes mortgage rates to drift higher.

With mortgage rates increasing, it has become harder for first-time homebuyers to enter the real estate market. New buyers will be left with the choice to wait and save up more money for their down payment, or find a less expensive place.

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