In April 2021, it was possible to negotiate a 5-year mortgage at a rate as low as 1.9% on the Quebec mortgage market.
Today, when you manage to negotiate a new five-year mortgage at 4.9%, you breathe a sigh of relief. This is despite the fact that rates have jumped more than three percentage points in the space of a few semesters.
I don’t want to discourage households that have to negotiate a new mortgage, but you should know that today, it costs a nasty meal compared to what it cost before the sharp rise in interest rates.
For each tranche of mortgage loan of $100,000, the increase of three percentage points represents an additional monthly amount of $157.29, or even $1,887.48 over one year.
Concretely, here is the annual supplement that you will have to pay compared to April 2021 if your mortgage to be negotiated or renegotiated is:
- 200 000 $ : + 3775 $
(+ $314.58/month) - 300 000 $ : + 5662 $
(+ $471.87/month) - 400 000 $ : + 7550 $
(+ $629.16/month) - 500 000 $ : + 9437 $
(+ $786.45/month) - 600 000 $ : + 11 325 $
(+$943.74/month)
A chill, but…
Following the spectacular rise in mortgage rates, the residential resale real estate market cooled, while total sales fell by 16% in the first eight months of the year. But that hasn’t stopped the median home price from continuing to climb.
According to the Association professionnelle des courtiers immobiliers du Québec, here is the “cumulative” median price for the first 8 months of the year and, in parentheses, the increase compared to the median price for 2021.
All of Quebec
- Single-family: $425,000 (+19%)
- Condominium: $372,000 (+16%)
Montreal metropolitan area
- Single-family: $560,000 (+15%)
- Condominium: $400,000 (+13%)
Quebec region
- Single-family: $344,500 (+12%)
- Condominium: $230,000 (+12%)
North Shore of Montreal
- Single-family: $500,000 (+21%)
- Condominium: $340,000 (+28%)
South Shore of Montreal
- Single-family: $565,000 (+15%)
- Condominium: $370,000 (+19%)
Due to the rise in mortgage rates and its extremely negative impact on the personal finances of households, more and more analysts are anticipating a drop in house prices in Quebec of 5 to 15%.
This is all the more plausible given that the Bank of Canada will have to continue tightening credit by raising its key rate again by the end of the year. And that the American Federal Reserve also feels compelled to raise its key rate significantly to try to curb the galloping inflation that is raging in the United States.
First purchase
We agree that the bar has become very high for households wishing to acquire a first home or condominium. Not only is the price very high, but mortgage rates have risen above their pre-COVID-19 levels.
The official rate for the five-year mortgage term is 6.14%.
Per mortgage tranche of $100,000, amortized over 25 years, the monthly repayment of a mortgage at such a rate amounts to $648.15. This represents a disbursement of 7778 dollars per year.
Let’s take as an example the median price of a single-family home in Quebec: $425,000.
To avoid having to pay a mortgage insurance premium or insurance from the Canada Mortgage and Housing Corporation (CMHC) in addition to the mortgage, a down payment of at least 20% must be made.
On the purchase of a property of 425,000 dollars, it will be necessary to pay 85,000 dollars as a down payment. This leaves a balance of $340,000 to be mortgaged.
At the current rate of 6.14%, the repayment of such a mortgage amounts to 2,204 dollars per month, or 26,445 dollars per year.
To the cost of the mortgage will be added annually municipal taxes, school taxes, home insurance, maintenance costs, etc., etc.
Good luck !