With an expected increase of Canada’s overnight lending rate in 2014, first-time homebuyers will want to take notice of the escalating cost of borrowing when it comes to the purchase of a home.

For the most part, the Canadian overnight rate has remained at one per cent since September 2010 to counter world markets affected by recession. Some buyers may be expecting those low interest rates to last for a while. In a report released by BMO, one-third of firsttime buyers polled expect interest rates to stay the same over the next five years.

“The Bank of Canada has made no changes to its policy bias,” said Doug Porter, chief economist, BMO Capital Markets. “With Canadians’ debt-toincome ratio poised to stabilize in the months ahead and the housing sector cooling, we continue to look for a rate hike during the second half of 2014. Even so, other interest rates, such as longer-term mortgage rates, can rise well ahead of the Bank of Canada.”

Other first time buyers however, have been keeping their eyes on interest rates and the entirety of the housing market before making the decision to buy.

“It seems that housing prices are going up and so are interest rates so I’m thankful I was able to get the house I did when I did,” said Peter Law who took possession of his new home May 31 after the home he was renting with friends was put up for sale.

“I also had lots of conversation with my parents, who are landlords on a few properties themselves, as to when might be a good time to buy,” he said. “After spending many hours with my real estate agent … who was fantastic through the whole process, one of my main concerns was that as a first time buyer I wouldn’t be able to find exactly what I wanted in a home within my price range.

“I ended up getting exactly what I wanted and a price that was fair too.” Doing their research also played a big part in the purchase of their first home for Kathryn and Ritwik Dey in February.

“I’d been keeping an eye on the housing market for over a year and it seemed like the combination of price stabilization, low interest, and it being a buyers market in the winter was the right combination for us,” Kathryn said.

With mortgage experts noting current projections indicate the cost of borrowing to own a home will gradually increase, it’s a good thing when first time buyers like Law and the Deys do their homework.

“It remains vital for Canadians — particularly homeowners — to be prepared for the inevitable rise in interest rates,” said Frances Hinojosa, mortgage expert, BMO.

Nationally, the BMO report found those living in Ontario are the most likely (34 per cent) to expect interest rates to stay steady over the next five years, whereas those in the Prairie provinces are the least likely (27 per cent).

The report also showed that, while the timing of the rise in rates may be different, 76 per cent of Canadians are taking the right steps in planning to “stress test” their mortgage against a higher interest rate to be sure they can afford their home over the long term.

“For both first-time and repeat buyers, it’s essential to stress-test their mortgage against a higher interest rate to ensure they can manage a rise in costs as a result of any potential increases in interest rates down the road,” said Hinojosa. “It’s also wise to choose a mortgage with a shorter amortization, which can help homeowners become mortgage-free sooner.”