The COVID-19 pandemic has caused big changes in the world economy. To help stabilize things, banks like the Bank of Canada made some important decisions. One of these decisions was to lower interest rates to the lowest they’ve ever been. The idea was to encourage people to borrow, invest, and spend money, which can help the economy. But there was a downside too – it caused prices to go up.
When prices go up, we call it inflation. There are a few reasons why inflation happens. One is that more people want to buy things, so the demand goes up. Another reason is that it costs more to make things, so prices have to go up to cover those costs. Disruptions in the way things are made and delivered can also drive prices higher. During the pandemic, all of these factors came into play, causing prices to rise. Central banks around the world, including the Bank of Canada, responded by raising interest rates. They did this to slow down the economy and bring inflation back to normal levels.
Since 2022, inflation rates have started to go down. However, there is still more work to do. The effects of disruptions in the supply chain and challenges in production are still pushing prices higher. Additionally, certain areas, like the housing market, are dealing with a difference between how much people want to buy houses and how many houses are available.
In this kind of market, it can be tough for people dealing with high-interest rates and high home prices. But there are options to consider. One option is to explore different terms when renewing your mortgage. This can help you get a lower interest rate, which means lower monthly mortgage payments. Another option is to extend the time you have to pay off your mortgage. This spreads out your payments over a longer period, which can give you some relief right now. And when rates decrease, you can adjust your mortgage amortization once more.
Even though interest rates are high, buying a home today can have long-term benefits. Because of lower demand and supply issues, home prices have actually gone down. But as interest rates start to go down again, home prices are likely to go up. This is because people will feel more confident about buying homes when interest rates are lower. So, if you’re thinking about buying a home, it’s a good idea to think long-term. Buying now, while prices are lower, could be a smart way to build wealth as your home’s value goes up over time.
The media talks a lot about interest rates because they have a big impact on the economy. They affect things like inflation and the housing market. By understanding what causes inflation and considering different strategies, you can navigate these uncertain times successfully with the right plan in place. Whether it’s renewing your mortgage, extending the time to pay it off, or making informed decisions about buying a home, you can weather the storm and set yourself up for future financial success. It’s important to stay positive and remember that every challenge also brings opportunities for growth and prosperity.
Originally written for BizX Magazine, June Issue, 2023. Rasha Ingratta, a local Mortgage Agent, is a true enthusiast with three loves in life: Family, Friends, Fur babies, and... Real Estate! Whoops, did someone sneak an extra love in there? P: 519-250-4848 rasha@shopmortgages.ca www.shopmortgages.ca 3385 Dougall Ave. #200 Windsor, ON (across from SUBWAY PLAZA) Brokerage #10428
