Homebuyers rush for mortgage pre-approvals amid mounting signs of rate hikes to come

Canadians are scrambling to get mortgage pre-approvals and rate holds before the era of low interest rates comes to an end, as some economists predict.

Real estate and mortgage brokers say their clients are increasingly seeking ways to hold on to current rates because many housing markets like Toronto are facing heated conditions that make it hard to keep purchase prices down.

"It's a seller's market and you barely have the opportunity to put conditions (on a purchase) because there are 400,000 people waiting for their permanent residency, 200,000 of them are already here and there's buyers lined up around the corners," said Estee Zacks, the Toronto-based owner of Strategic Mortgage Solutions Inc.

"They feel weak, and they are statistically, so they're just trying to get a leg up as much as they can."

Zacks has noticed a recent surge in prospective buyers requesting rate holds from lenders. Rate holds freeze mortgage rates for up to 130 days.

Mortgage rates vary across banks, but Ratehub.ca shows the country's top five banks are offering five-year fixed mortgages for as low as 2.62 per cent and as high as 2.94 per cent.

Three-year fixed mortgages range from 2.49 to 3.49 per cent, while five-year variable mortgages vary between 1.40 and 1.75 per cent.

The interest rate, which also weighs on homebuyers, has sat at 0.25 per cent since March 2020, but the Bank of Canada has hinted it could rise as the country continues to climb out of the pandemic and loosen restrictions.

A rise in both mortgage and interest rates would end an almost two-year period of rock-bottom borrowing costs. However, the low rates haven't done much to take the bite out of housing costs.

The Canadian Real Estate Association said the national average home price was $686,650 in September, up 13.9 per cent from $602,657 last year.

In Toronto, it was even higher. The Toronto Real Estate Board said the average price of a home sold soared by almost 20 per cent to nearly $1.2 million in October, up from $968,535 in the same month last year.

Rates hikes will make those purchases even more costly.

A one per cent increase in mortgage rates from current levels will cost an average new buyer $230 or 12 per cent more in additional monthly interest payments, CIBC Capital Markets analyst Benjamin Tal wrote in a Nov. 4 note to investors.

"Potential buyers will face a higher interest payment trajectory, leading to reduced demand for new and existing units, potentially resulting in some slowing in the important construction industry," he wrote.