24 Oct

Rising mortgage rates got you down? Expert advice here.

Posted at 16:58h in Uncategorized by faristeam

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by Tim L. Walker, Mortgage Agent

We all knew it was coming. As soon as Canada, Mexico and the United States announced the USMCA (formerly NAFTA), we were all but certain October 24th would bring a rate hike.

No surprises today. The benchmark interest rate jumped up a quarter percentage-point. Lenders will be increasing their prime rate to 3.95% as early as tomorrow.

Rising mortgage rates have you feeling a little anxious? What will that mean to your family and what should you do about it?

Along with the rate hike was a hint that there are more increases to come in the next year. It was the 3rd increase this year, and the 5th since the Bank of Canada began nudging up rates last year. Coupled with improving economic forecasts, many economists are anticipating several more rate hikes over the next year or so. The Bank of Canada and those that are behind Canada’s big financial decisions are working to increase Canada’s historically low borrowing costs to a more “normal” level.

For most Canadians, however, higher interest rates means the cost of borrowing will go up, and day-to-day margins get a little tighter. Let’s take a look at the actual numbers:

Every .25% rate increase results in an extra monthly mortgage payment of approximately $12-$15 per $100,000 of mortgage. The average mortgage in Canada is around $200,000, so that results in a $25-$30/month increase. Add in 3 more increases over the next year, though, and that can add an extra $100-$120/month. If your mortgage is $400,000, that would mean an increase of $50-$60/month for one increase, and upwards of $200-$240/month for 4 increases.

On top of that, however, are lines of credit and other consumer debt tied to prime. The amount of debt being carried can certainly amplify that number.

Now What?

So rates look like they’re going to continue to climb. Should variable rate mortgage holders lock in? Should first time home buyers go fixed?

Yes.

or No.

or Maybe.

It depends.

That’s probably not that answer you want to hear, but it really does vary depending on your situation. Since we’ve been tracking this, more than 90% of the time, variable wins out over fixed. So odds are, you’ll save money and pay less interest by going variable. But if you’re losing sleep every time a Bank of Canada announcement is coming, maybe fixed is the way to go.

Are you carrying some debt?

If you are, especially some higher-interest consumer debt (like credit cards and lines of credit), maybe it make sense to roll some of your consumer debt into your current mortgage and lock-in now. You might also consider lowering mortgage payments and increasing cash flow.

Pro Tip:

What about keeping your variable rate mortgage, but start paying it like you’ve locked in (which insulates you against several increases)? You pay down your mortgage faster, plus you know what your payment will be through several rate increases.

Locking in

Maybe knowing what your payment will be for five years is worth the risk of locking in and paying more. It really does vary from person to person and from situation to situation.

What everyone should do

My advice? Talk to your mortgage broker. Talk to your bank. If you’re not sure who to talk to, feel free to get a hold of me directly (conveniently located inside the Faris Team Client Experience Centre!)

Click here to schedule a 15-minute phone call to go over your options.

Find a knowledgable mortgage professional who can help you decipher these rate increases, and help you decide what the best mortgage options are for you.