While a stress test based on that rate is about 6.5%, a figure that has a not inconsiderable impact on purchasing power, lower property values counterbalance that to some extent, Puzzo said, with first-time buyers now in a position where they could purchase a home that they wouldn’t have been able to at the height of the market frenzy in February.
Recent variable-rate increases have had the effect of shining a light on the different types of variable products that are available in the industry, according to Puzzo, something that brokers will be increasingly attuned to in the future.
He said variable options where the payment amount doesn’t change are likely to become increasingly popular – unless rates increase to a point that brings the so-called “trigger rate,” the level at which lenders can raise the fixed payment amount on a variable mortgage, into play.
“As long as we don’t start hitting trigger rates, which may happen in September, the variable becomes a little bit more appealing – specifically with lenders whereby the payment doesn’t fluctuate unless a trigger rate is hit,” he said.
“You can provide payment certainty to a certain point. For clients that are going variable today, the prime is 4.7%. Let’s say the variable rate is 4.2%. A trigger rate on something like that is probably north of 7% – so the likelihood of rates going there [is small]. If the rates go there, we have other problems.”