The current interest rates for home buyers in Alberta is around 2.23 – 2.4% for a 25 year mortgage. The variance in basis points is mainly determined by whether or not you have a variable rate or a fixed rate & the length of the term. A variable rate mortgage is the lowest interest rate percentage at 2.23% but it fluctuates with the market. A 25 year mortgage locked in at 10 years would be the highest at around 2.4% it’s higher because you’re paying a premium for the security 10 years of the same payments has to offer.
There are many strategies when buying a home to decide which one of these structures is best for you, but what does the borrowing rate mean for you once you’ve already got a house?
The ‘cost’ of capital will affect your sale price. Like I’ve said in blog posts before, when selling, the price you’re negotiating on is cash in your pocket. To the buyer, the sale price is broken down into a mortgage payment which they not only have to afford but also must qualify for. So, to you, it does not matter what the mortgage rate is when selling but let’s see what it means for the buyer:
If your house is 550K & their mortgage rate is 2.33 APR the monthly mortgage is $1,900
What about a 3.5 APR Mortgage rate? The payment is now $2,200
That may not seem like a huge bump but it has lowered your pool of potential buyers. Higher mortgage rates will slow the real estate market and eventually lower the price of your property.
Following with our example above, to have the same amount of buyers at 3.5% who could afford your house at 2.33% you would have to re-price it at $480,000.
The moral of this story: you’ll get more for your house if you sell when mortgage rates are lower than when they are higher!