Today, the Bank of Canada increased their overnight rate by .50% from 3.25% to 3.75%
This will mean that lenders will increase their prime rates by .50% as well to 5.95%.
What does this mean for those in variable rate mortgages and those looking to purchase a new home?
This rate increase is slightly smaller than the market was predicting. We were expecting a .75% increase. We are expecting the possibility of one more increase later this year. Some economists are predicting that the Bank of Canada will start decreasing rates at some point next year.
Changes for those in variable rate mortgage or with Home equity lines of credit
Monthly payments will increase roughly as follows: $30.00 a month per $100,000.00 of mortgage.
Changes to those looking to purchase a property
Buyers will have their buying power reduced slightly (another 5-8% or so depending on the down payment %). If you are looking at purchasing a home, it’s important that we relook at your qualifying/budget.
Our Thoughts:
This year has been brutal with rate increases. Just last year the Bank of Canada was telling Canadians that they weren’t going to be increasing rates this year and then boom, 6 increases in a row. This has been a really tough challenge for those looking to buy, those holding variable rate mortgages, and those refinancing or renewing their mortgages.
We are also here to chat and give advice to our clients. Here are a few options clients might consider:
- Buyers – If you are looking at a fixed mortgage, we are often suggesting shorter term mortgages right now (ie. 1 – 3-year fixed rate terms). With the potential for rates to decrease in the coming year or two, you won’t want to be stuck with a big penalty to get out of a higher 5-year fixed. For maximum qualifying variable rates, we have been offering clients the ability to qualify for a larger mortgage than fixed rates. It’s something for us to consider and talk about. If you are currently on the hunt for a property please reach out and we can revisit numbers
- Those in adjustable rate mortgages (payment changes as rates go up and down) – if you are struggling with your budget or making payments a few things to look at include:
- Refinancing to extend your amortization and lower payments
- If you are on bi-weekly accelerated payments you can switch to regular bi-weekly or monthly payments. This can decrease your payments (But will increase the time
- Locking in if you are interested in locking it’s best to reach out to your current financial institution to see what they will offer. Then reach out to us and we can review with you to see if it makes sense to do so.
- Variable rate mortgages – (Static Payments – payments that don’t changes rates go up and down). Some people have been hitting their trigger point which is the point at which the lender requires a larger payment because too much of the payment is going to interest and little or none to principal
- Consider increasing your payments. We have seen amortizations extended out to 50-60 years because of rising interest rates while payments have stated the same.
- Watch for your trigger rate. It’s important to talk to your lender prior to getting hit by this if you are worried about it.
- Those with mortgages coming up for renewal in the next 12 months. If you are concerned about affordability or just want to make sure can get the best deal possible here’s some tips:
- Reach out to us well in advance. Even a year out is ok! Generally we can get the best options 90-120 days from your renewal but it doesn’t hurt to look at options early and hold a rate incase things keep going up.
- Make sure you don’t wait until last minute. It can easily take up to a month from the time of application to closing on a renewal if we are switching lenders. It can be stressful if things are left too late.
- Don’t sign your renewal agreement from your lender without talking to us first! Not only can we possibly get you better rates or terms we can also give you advice as to which renewal option your lender has offered would best for you.
Please feel free to reach out to us if you have any questions or if there is anything we can do to help in these crazy times
You can book a call directly with Michael here: https://calendly.com/mortgagefit/mortgage-call
