I live in Vancouver, land crazy real estate prices. I must admit that I’m hoping the two 25 basis-point rate increases over the past several months slow down the housing market so my family can eventually buy. However, will these rate increases change home-buyer behaviour? Let’s look a few examples of how the rate increases may impact home owners or potential home buyers:

Example A:  A young couple with an existing $500k mortgage (25 year amortization)

At 2% the monthly payment was $2,117.16.  After the 0.50% rate increase (two 25 basis-point increases) the monthly payment is now $2,239.83.  The monthly family budget will need to adjusted for an additional $122.67 per month! (Figures based on calculations using the online calculators at www.canadamortgage.com)

Example B:  Potential home buyer that can afford a monthly mortgage payment of $2100

At 2% the home buyers would be looking at a mortgage amount of about $495,925.  With the rate half a percent higher at 2.50%, the same $2100 monthly payment equates to a mortgage amount of $468,785 (both based on 25 year amortizations).

Assuming that the buyer’s down payment cannot be increased, their purchasing power has decreased by $27,140.

Looking at the numbers, I’m hopeful that the rate increases will slow down the Vancouver real estate market a bit.

What are your thoughts?  Will these small rate increases change purchasing behaviour in the short-term?  Or do you believe that buyers in Vancouver are paying all cash and don’t need significant mortgages?

Disclaimer:  This blog has no professional association with any organizations or companies mentioned in the article.  The contents of the article are the personal opinion of the author at the time the article was posted and may be subject to change.  The blog and author are not responsible, nor will be held liable for any content posted by others in the blog comments.  Readers should complete their own due diligence prior to making any personal decisions.