Talking Mortgage Interest Rates with Leanne Shearer, Mortgage Broker

February 4, 2022 | Buying a Home

We’re getting many questions from our clients about interest rates. We’re not qualified to give mortgage advice, so I turned to one of our trusted mortgage brokers, Leanne Shearer. Leanne agreed to be interviewed for this piece to shed some light on what’s happening with mortgages.

Robyn: We’ve been hearing a lot about how inflation is high, and therefore interest rates need to rise. What is the relationship between inflation and interest rates?

Leanne: First, I could not believe the amount of hype leading up to the Bank Of Canada’s announcement last week. The media frenzy drives me crazy. It creates anxiety for people, even though the Bank of Canada does not know its decision until the day of the announcement. However, I was not surprised by the decision to hold rates steady, given that we are still climbing out of COVID. It was only on Jan 31st that businesses were allowed to re-open; therefore, increasing the overnight rate at this time would not be sensible. Inflation plays a key role in the BOC’s decision; however, it is not the only factor considered. The BOC cannot control the economy with its policies; however, it can help by creating a delicate balance between inflation, money, and the economy’s growth.

Inflation = increase of cost of goods/services. Having some inflation is good because it means the economy is growing, but too much will have a negative impact on spending because our $1 is not worth as much. Increasing rates will help slow down the amount of money circulating in the economy, resulting in a drop in inflation and allowing the economy to hum along and enable us to live to the best of our ability.

The moral of the story is yes, inflation is a driver for an increase to interest rates, but unemployment and the global political landscape will also be a deciding factor that the BOC will consider on its next decision on March 2nd.

Robyn: What do you predict will happen to interest rates this year?

Leanne: I don’t make predictions. As said prior, the BOC likely doesn’t have a decision made until the day of the announcement themselves, so my answer will simply be they are going up. It’s not like there’s this grand plan that we’re not let in on. The bank of Canada makes decisions about their rate increases based on what’s happening in the overall market. Predictions need to take into account the global landscape. Will Russia be invading Ukraine? Is COVID coming back? What’s happening with unemployment? In my opinion, interest rates will rise gradually over the next several years, which will eventually get us to a level that we saw pre-COVID. Remember, these are historically low rates and not sustainable for the long term. Bottom line, we don’t know when rates will go up, but neither does the bank of Canada.

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Robyn: How important are interest rates as a predictor of a buyer’s affordability?

Leanne: We need to change the conversations about interest rates. I feel so strongly about this I could talk about it all day. People just try to find the lowest rate and be done with it. Everyone getting a mortgage is pre-qualified at 5.25% right now, so likely, affordability won’t be too affected. The truth is, there are so many other essential parts of a mortgage that the banks never fully explain or share. What are your pre-payment options? How is your interest compounded? What are the penalties if you try to pay out the mortgage? Is there a stipulation you cannot change lenders within your five-year term?

My personal preference today is still pro variable. Flexibility, lower penalties and with current lender offers of P=1% vs the current fixed rate, the spread is significant enough that it can take 6-8 BOC increases (typically .25% / increase) to match fixed-rate mortgages of today. This is why it is so important to work with someone who takes the time to explain the fine print and has access to various mortgage products that fit your specific needs. The other parts of the mortgage are far more critical than a few percentage points on a rate. Remember, the lowest rate may not be the cheapest!

Robyn: The real estate market is extremely tough for buyers right now. Do you think the rise in interest rates will cool down the market?

Leanne: Like any change, it may cause a slight hiccup, but if a global pandemic didn’t stop the market, I don’t think a .25% – 1% rate hike will either! The real issue is a lack of housing supply. Toronto/GTA and other parts of Ontario continue to grow, so demand will continue. Buyers will carry on.

Thanks so much, Leanne!

Let us know if you have any follow-up questions for Leanne.

★ If you’re a first time homebuyer check out these buyer resources:

As always, stay safe.

Robyn VanderVennen