- Are rates going up?
- Should I be looking at locking in?
- When is a good time to think about locking in?
- If I’m getting a new mortgage, should I be looking for a fixed rate?
These 4 questions, or some variation of, are what we’re hearing from our clients right now. And if you’re not one of the ones who have asked us, then we can only assume that you’re asking them of yourself… in your head. So let’s talk about what we’re seeing and hearing along with what’s being said.
1. Are rates going up?
During the last update, the BoC (Bank of Canada) had indicated that although they were not going to be announcing an increase that day, the rise in inflation meant that Canadians can expect interest rates to follow. There are so many global economic factors that are weighing heavily on Canadian markets right now, and to raise interest rates, the BoC needs to make thoughtful, measured decisions. Those decisions are not only based on things like inflation, but geo-political climates and what’s happening elsewhere in the world. Given the recent events in Europe, you can bet that the bank is extremely concerned about the ramifications the sanctions and war itself will have on our recovering economy.
2.Should I be locking in?
Clients with variable rate mortgages often think that if the bank does raise interest rates, you should immediately look at locking in. But it’s not a decision we recommend making at the first sniff of a rate increase, and there are a couple of reasons why.
Firstly, it will most likely be by a 0.25 of a percent, taking for example, a 1.50% rate to 1.75%. If you decide to lock in, you’re not locking in at your variable rate – you’re locking in at the fixed rate of the day, which is in right in the 3.04%-3.29% range today.
To monetize that for you, here’s some quick math you can do in your head to help you understand where you sit and what the penalty is:
- For every 0.25% hike in interest rates, you’re going to pay an extra $13/month for every 100k in mortgage you have
- On a mortgage of $500,000, you’re looking at an increased monthly payment of $65.
- Going from a 1.5% variable to a 3.3% fixed and locking in, you’re looking at $90/month for every 100k in mortgage
- On a mortgage of $500,000, locking in will cost you an extra $450 per month
Secondly, do you have a variable rate mortgage with fixed payments? This is an important distinction to make as there are lenders who offer payment stability in variable rate mortgages to help clients mitigate any uncertainty they feel a rate hike may have on their month to month operating expenses
3.When is it a good time to think about locking in?
There are a variety of reasons why keeping a variable, and it’s flexibility, is the right thing to do for you and your family. Even if you don’t predict breaking this mortgage (truly who does), it happens. Maybe a move will happen, perhaps you’ll want to upsize, maybe you’ll want to access further equity in your home, the list goes on. There’s a lot of factors that we can weigh here, on why we think having this increased flexibility with your variable rate are important, as banks make huge profits from penalties applied to mortgages that are broken before their term.
Of course, at the end of the day – this is entirely about comfort levels and risk tolerance. If having a variable rate is making you worry, or lose sleep right now, then schedule a call and we can do what’s best for you, and how we can get you there.
4. If I’m getting a new mortgage, should I be looking for a fixed rate?
This one isn’t a straight yes or no, as it depends on everyone’s individual risk tolerance. As we’ve stated before, the flexibility of variable rate mortgages are still going to be better than those of fixed, so let’s have a conversation about it using your specific scenario and we’ll identify a way forward that you can believe in and feel comfortable with.
As always, we’re here to serve you. Please don’t ever hesitate to reach out and book a call with myself or my team at any time.