Whether you’re buying your first home or getting ready to list your property, one factor you simply can’t ignore is interest rates. These rates influence how much homebuyers can afford—and how sellers should price their properties.
In this blog post, we’ll break down what interest rates are, how they work, and why they matter to both homebuyers and home sellers in today’s real estate market.
What Are Interest Rates?
An interest rate is the cost of borrowing money. When you take out a mortgage, your lender charges you interest on the loan balance. The rate you receive depends on a few key factors:
The Bank of Canada’s benchmark interest rate
Your credit score
The loan term (e.g. 15-year vs. 30-year mortgage)
The type of mortgage (fixed vs. variable)
Even a small change in interest rates can significantly affect your monthly mortgage payments and how much home you can realistically afford.
How Do Interest Rates Affect Homebuyers?
For buyers, interest rates play a major role in your purchasing power. Here's how:
1. Higher Rates = Higher Monthly Payments
When rates rise, so do your monthly mortgage costs. For example, a 1% increase in interest on a $500,000 mortgage can add hundreds of dollars to your monthly payment.
2. Lower Rates = More Buying Power
When interest rates drop, buyers can often afford a more expensive home with the same monthly budget.
3. Qualifying for a Mortgage
Mortgage stress tests in Canada require buyers to qualify at a higher interest rate than their actual contract rate. So, rising rates can make it harder to qualify for a loan—even if your income hasn’t changed.
Tip: Get pre-approved early and lock in a rate with your lender. This protects you from potential hikes during your home search.
How Do Interest Rates Affect Home Sellers?
Sellers aren’t immune to interest rate changes. In fact, your timing and pricing strategy may hinge on where rates are heading.
1. Buyer Demand
As rates rise, fewer buyers may qualify for mortgages, and those who do may be shopping with tighter budgets. This could mean longer time on market or increased pressure to reduce your asking price.
2. Negotiation Leverage
In a low-rate environment, buyers are often more competitive, leading to faster sales and potentially multiple offers. High-rate environments tend to shift the market in favor of buyers.
3. Strategic Timing
If you're planning to sell, it's important to watch interest rate trends. Selling before a major rate hike could help you attract more qualified buyers and close at a higher price point.
What’s Happening with Interest Rates in 2025?
As of mid-2025, interest rates in Canada are still adjusting following several increases by the Bank of Canada to control inflation. While the market is stabilizing, experts expect moderate rate changes through the remainder of the year.
What does this mean for you?
Buyers: Lock in a rate soon if you’re thinking of purchasing this year.
Sellers: Be prepared for a slightly more cautious pool of buyers and consider working with an experienced agent to price your home effectively.
Final Thoughts
Interest rates are more than just numbers—they shape the entire real estate landscape. Whether you’re buying or selling, understanding how rates work can help you make smarter, more strategic decisions.
If you're navigating the market and want personalized guidance, I’m here to help.
👉 Let’s talk about your next move. Contact our team today.
