Variable rate mortgages increase while house prices decline

People with variable-rate mortgages are seeing their monthly payments go up thanks to another hike to the Bank of Canada’s benchmark interest rate.

Regina Mortgage Broker Carrie Cardinal said the 0.25 per cent increase to the benchmark interest rate should not impact fixed-rate mortgages or people qualifying for new mortgages in the next few months.

Variable-rate mortgages typically provide a discount compared to fixed interest rates but are subject to change based on prime rates.

“I currently have a variable rate mortgage myself and my rate went on my variable rate mortgage from 2.7 to 2.95 per cent and that’s a five-year variable rate mortgage,” Cardinal said as an example.

She said most people with variable rate mortgages can expect to see a hike of about $13 per month per $100,000.

“So let’s say the mortgage is $300,000, you’re looking at about a $39 increase per month on a $300,000 mortgage,” Cardinal explained.

She said people who chose variable rate mortgages are usually very prepared for an increase, particularly because those rates have been very low for a long time.

Prime rates set by banks and other lenders reflect the benchmark interest rate set by the Bank of Canada which has now been increased to 1.5 per cent.

“Three years ago, July 2015, we had prime rate of 2.75 per cent so we’re only up one per cent in the last three years with prime,” Cardinal commented. “Generally speaking those variable rate mortgage holders have been doing very well for a very long time and we’ve kind of expected at some point that the rate will start creeping up.”

Regina house prices decline

A Regina realtor said the oversupply of houses currently listed for sale is putting pressure on house prices.

“Right now we’ve got one of the highest listing inventories that I personally have seen,” commented Mike Duggleby, broker and managing partner at Royal LePage Regina Realty.

The most recent Royal LePage house price survey released in July showed a 1.4 per cent decrease to the overall price of a home compared to last year.

The median price of a house in Regina is down to about $324,664. Condo prices took the biggest hit, dropping 4.9 per cent down to $224,401. Duggleby credits that drop to a continued oversupply from building incentives a few years ago.

According to Royal LePage’s second-quarter report, the mid-range or median price of a bungalow is down to about $294,721 while two-storey homes increased by 1.5 per cent to $397,663.

Duggleby noted new mortgage qualifying regulations put in place this year by the national banking regulator have also changed what first-time home buyers can typically afford. He said this has put a cooling effect on the housing market.

“Yes, it very definitely has, the stress test that you’re referring to has made borrowers have to qualify at a higher rate than they’re actually borrowing at,” Duggleby said. “It has created a situation where if last year you were shopping in the $350,000 range, maybe now you’d be shopping in the $280,000 or $290,000 range which is quite a difference in houses.”

While the increase in the benchmark and prime interest rates will make variable-rate mortgages more expensive, the lower house prices in Regina may help make up the difference.

“At least in our market, we’re in a buyers’ market and prices have been falling, so that has been compensating somewhat,”  Duggleby said.

Royal LePage expects Regina’s housing market to remain relatively flat for the next three months. Given Saskatchewan’s commodity-based economy, Duggleby suggested any increase in oil or potash prices could bump up demand for houses once again.

—With files from 980 CJME’s Adriana Christianson