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Are lower mortgage rates actually a good thing?

Last Updated Aug 17, 2017 at 7:08 am PST

(iStock Photo)

VANCOUVER (NEWS 1130) – Your mortgage may be one of the biggest payments you have to make, but new numbers from the Fraser Institute suggest a lot has changed in the last 17 years.

Josef Filipowicz is a senior policy analyst with the Fraser Institute. He says things have changed in the during a 16-year period from the turn of the millenium to last year.

“The interest rate at which home buyers get qualified for mortgages has dropped from around seven per cent to 2.7 per cent. This means that a lot less of their monthly payment is dedicated to interest and more can go towards the principal. So, in short, they can afford far bigger mortgages than they used to.”

“A family income in 2000 could qualify for up to $180,000 in mortgage loans. By 2016, that same income could qualify for over $275,000 in mortgage loans. That’s big. That’s more than a 50 per cent jump,” he adds.

He suggests higher rates might keep more people out of the market, which would make it easier for you to buy a place.

“We use basic techniques in our study that a bank would use to sort of screen someone to see if they can qualify for a mortgage and just using those techniques, we see that people can qualify for far bigger mortgages than they used to. This would inevitibly make its way into house prices.”

However, Filipowicz does add that the supply of new homes isn’t exactly keeping up with demand, even if affording more mortgage is certainly a good thing.