{"id":27718,"date":"2022-09-06T14:26:05","date_gmt":"2022-09-06T18:26:05","guid":{"rendered":"https:\/\/www.moneysense.ca\/?p=270127"},"modified":"2022-09-06T14:26:05","modified_gmt":"2022-09-06T18:26:05","slug":"housing-affordability-what-happens-when-lower-home-prices-take-on-higher-borrowing-costs","status":"publish","type":"post","link":"https:\/\/www.moneysense.ca\/columns\/what-happens-when-lower-home-prices-take-on-higher-borrowing-costs\/","title":{"rendered":"Housing affordability: What happens when lower home prices take on higher borrowing costs?"},"content":{"rendered":"
<\/div>\n

The following table represents two scenarios: home owners with a 10% down payment, and those with a 20% down payment. Mortgages with a 20% down payment generally have higher interest rates because they are not eligible for mortgage default insurance<\/a>. However, a home owner who puts down less than 20% will have to account for the added insurance costs. <\/p>\n

Thanks to Gina Athanasious<\/a>, a RE\/MAX real estate expert, for her help with the following calculations. <\/p>\n

\n\n\n\n\n\n\n\n\n
Month
(with average home price)<\/th>\n		5-year fixed
(10% down)<\/th>\n		<\/th>\n5-year fixed
(20% down)<\/th>\n		<\/th>\n5-year variable
(10% down)<\/th>\n		<\/th>\n5-year variable
(20% down)<\/th>\n		<\/th>\n<\/tr>\n<\/thead>\n
<\/td>\nRate<\/td>\nPayment<\/td>\nRate<\/td>\nPayment<\/td>\nRate<\/td>\nPayment<\/td>\nRate<\/td>\nPayment<\/td>\n<\/tr>\n
February<\/strong>
($816,720)<\/td>\n		2.59%<\/td>\n$3,326<\/td>\n2.79%<\/td>\n$3,022<\/td>\n0.90%<\/td>\n$2,736<\/td>\n1.25%<\/td>\n$2,536<\/td>\n<\/tr>\n
June<\/strong>
($665,850)<\/td>\n		4.79%<\/td>\n$3,414<\/td>\n5.04%<\/td>\n$3,110<\/td>\n2.50%<\/td>\n$2,685<\/td>\n2.80%<\/td>\n$2,467<\/td>\n<\/tr>\n
July<\/strong>
($629,971)<\/td>\n		4.34%<\/td>\n$3,100<\/td>\n4.59%<\/td>\n$2,827<\/td>\n3.50%<\/td>\n$2,838<\/td>\n3.85%<\/td>\n$2,619<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n

The scorecard shows that, from February to June, variable-rate costs improved modestly, with falling home prices outweighing higher interest rates. Redo the same calculations for the 2022 period of February to July, however, and we see that variable-rate costs worsened, with higher interest rates now outweighing the drop in home prices. <\/p>\n

The opposite is true for fixed-rate mortgage costs. Those costs worsened between February and June but improved modestly between February and July. That said, head-to-head, variable rates seem to remain the more cost-effective option. <\/p>\n

Factoring in the mortgage stress test<\/h2>\n

The mortgage stress test<\/a>, which sets a minimum qualifying rate for new mortgages, requires borrowers to prove they can handle their mortgage payment at the greater of 5.25% or their contract rate plus two percentage points. <\/p>\n

With many variable rates now sitting at just north of 4%, many buyers are having to qualify for a mortgage at 6% or higher, rendering the 5.25% threshold essentially not applicable. And now that fixed mortgage rates have increased by two-thirds in just four months, many people applying for fixed-rate mortgages are facing stress-tested rates of around 7%, on average. <\/p>\n

This, too, is putting downward pressure on the housing market. <\/p>\n

James Laird, co-CEO of Ratehub Inc. and president of the mortgage lender CanWise (which is also owned by Ratehub Inc.), explains that generally, for every 1% that the stress test increases, a household qualifies for about 10% less mortgage. \u201cHome prices will need to drop significantly in order to neutralize the effects that higher mortgage rates have on the stress test,\u201d Laird shared in a statement. \u201cUnless this happens, home affordability will continue to be impacted significantly by the current rising rate environment.\u201d <\/p>\n

Source<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The following table represents two scenarios: home owners with a 10% down payment, and those with a 20% down payment. Mortgages with a 20% down payment generally have higher interest rates because they are...<\/p>\n","protected":false},"author":1,"featured_media":27720,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rop_custom_images_group":[],"rop_custom_messages_group":[],"rop_publish_now":"initial","rop_publish_now_accounts":[],"rop_publish_now_history":[],"rop_publish_now_status":"pending","footnotes":""},"categories":[10,11],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/posts\/27718"}],"collection":[{"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/comments?post=27718"}],"version-history":[{"count":0,"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/posts\/27718\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/media?parent=27718"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/categories?post=27718"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.andrewwbradley.ca\/index.php\/wp-json\/wp\/v2\/tags?post=27718"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}