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Buying Homes in Canada Just Got Easier

The CoVID 19 has brought the world to a stand-still. With most governments across the world working towards developing a vaccine to save their citizens, the global economy has taken a huge hit in the side-lines. With a slew of measures taken by the central banks of most countries, the people have started to move into the future with their governments’ support.

The Canadian government in its part has taken its citizens’ livelihood into serious consideration and yesterday the Bank of Canada gave its recent announcement about retaining its interest rates until 2023. The bank rates are to be maintained at 0.5% and the deposit rate is to be maintained at 0.25%.

This move by the Bank of Canada is welcoming and it is at the wake of the bank to reach its inflationary target of 2%, which it hopes to achieve by 2023. The central bank says it expects Canada's economy could shrink by 5.7% this year, but grow by 4.2% next year and 3.7% in 2022. Inflation, meanwhile, is expected to be 0.6% this year, 1.0% next year, and 1.7% in 2022 and reaching 2% in 2023.

These projections are however based on the hope that the second wave of CoVID doesn’t strike us in the near future and there won’t be any further lock-downs. Millions of people have been directly affected in the past few months, not just by the disease itself, but by the precautionary lock downs that made people lose their jobs and prospects. The worst affected are the lower income people and their families and they are very much hopeful that the governments steps to ensure their livelihoods would save their future.

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In this wake, the Central Bank’s decision to retain the policy rate is a welcome move for many, for we know, lower interest rates mean higher borrowings from the banks and more capital in people’s hands to invest in businesses and ultimately a steady growth of economy.

There’s one other important benefit from this interest rate decision, it’s easier to buy homes now.

It is a big decision to buy a house or a condo, since they come with a lot of expenses. You have to cover for utilities, insurance, property taxes, repairs and what not, all that after you pay for the property first. And buying a house especially during these testing times, where you’ve used up most of your savings to protect your family during the lock-down, the hardship is huge.

But, right now, with the interest rates going to stay the same for the next three years, this is a good time to buy a house, through mortgage loans.

The housing market in Canada, as you well know works through real estate agents who look into your needs and budget and show you the options available. Once you select your desired property, you make an offer to the seller and when you move through real estate agents, they make the offer for you. After that comes the financing for the purchase.

You have options with regard to finance, that is, mortgage loans through banks or other financial institutions like insurance companies, credit unions or even Caisses Populaire. The mortgage loans, obviously take a long period of repayment, usually up to 25 years through which you pay the principal in installments along with an interest.

Now, you can ask the question, how the interest rate being steady for the next three years going to help you if you have to pay the loans for more than that?

The answer is simple. When you take the loan now, the interest for your borrowing is bound to be minimal and when you compare the interest rates that were applied to mortgage loans a few months ago, right now, is the most opportune moment.

For example, the fixed interest rates of most banks for the loan periods of 5 years and above was 2.71% in March 2020 and it slumped to 2.36% in august 2020. Right now the fixed rates are at 2.14% and the variable rates are even lower, 1.97%. This is bound to get lower since there are less buyers and the banks need to reduce the rates even further to amp up demand.

This combined with the actual market situation, the reduction in demand which led to stagnation in property prices will help you a lot right now. The minimum down payment for a property in Canada is 5% and the amount of your mortgage is the price of the home minus the down payment.

Also, If the down payment is less than 20% of the price of your new home, you might need mortgage default insurance. This insurance allows you to get a lower down payment and a lower interest rate. In actuality this insurance is a safeguard for the bank or the institution lending you the loan.

The announcement of the lowest possible interest rates, by the Bank of Canada, has its impacts on mortgages. And it is the best possible time for buying a home. So, start your calculations and get a realtor.

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