How Interest Rates Impact Real Estate Investing in Canada

Greenell Properties Capital
Sep 8
2 min read

Interest rates can make or break a real estate deal. As rates go up or down, borrowing power shifts, mortgage payments change, and investor strategies must adapt.

In this blog, we break down how interest rates directly impact real estate investors in Canada—and how to position yourself for success in any rate environment.

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1. Rates Affect Mortgage Affordability

Higher interest rates = higher monthly mortgage payments. This directly reduces how much an investor can borrow without going negative on cash flow.

Example:

A $500,000 mortgage at 2.5% = ~$2,000/monthThe same loan at 5.5% = ~$3,000/month

Investor Tip: Use conservative rate assumptions in your pro forma (5–6%) even if current rates are lower.

2. Rates Shape Buying Power & Home Prices

When rates go up, many buyers get priced out of the market—especially first-timers. This can cause:

Softening demand for entry-level homes
Price corrections in high-leverage markets

Conversely, rate drops tend to stimulate demand, leading to price increases.

3. Rental Demand Often Rises with Higher Rates

When borrowing becomes expensive, fewer people buy—and more rent. This can increase rental demand, drive up rents, and reduce vacancy rates.

Investor Tip: Landlords with fixed-rate mortgages can benefit from rising rents while keeping stable expenses.

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4. Refinancing and Cash-Out Strategies Shift

Investors using BRRRR or refinance strategies need to pay close attention to interest rate trends. Higher rates can:

Reduce appraisal values
Decrease refinance proceeds
Delay your ability to recycle capital

5. Variable vs. Fixed Strategy

Variable rate: Lower upfront but riskier long-term
Fixed rate: Higher certainty, better for planning cash flow

In volatile markets, many investors lean toward 1–3 year fixed terms for flexibility.

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Final Thoughts

Interest rates are a key factor in every investment decision. Whether you’re buying, refinancing, or holding, your strategy must adapt to market conditions.