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To help slow down inflation, the Bank of Canada announced earlier today another 100bps increase to the overnight rate.
This change will result in a corresponding increase to variable rate mortgage equal to a full 1 percentage point. After applying rate discounts, most borrowers should expect an actualized rate between 3.75% and 4.30%. To understand the direct financial impact, the subsequent change works out to an additional $54 per $100,000 borrowed.
Example: If your mortgage balance is $435,000, your monthly payment will go up by approximately $235.
Understanding that rapid material changes and higher payments can be challenging to manage, there are four things to consider:
Rates go up, and rates go down. When the economy starts slowing down, rates will begin to drop again. By no means is this to suggest that we will return to the sub-2% market we’ve been enjoying over the last 30 months, but the rising pressures will subside.
Pre-Pandemic, mortgage rates were in the 4% – 4.5% range so we are only now returning to where we were before Super low rates were not sustainable, and where we are today should not be scary as we’ve been here before.
If you want to lock in with a Fixed product, the comparable Fixed mortgage will most likely see you in the 5.34% – 5.54% range based on today’s posted rates. Including the changes announced today, you are better off staying with a Variable product for monthly savings, flexibility, and lower penalties.
With the introduction of the government qualifying stress test in 2018, all borrowers have been qualified at higher rates than their original mortgage payment to ensure affordability in this exact situation. This qualifying rate has been a minimum of 5.25% for over a year so as painful as these increases have been, in most cases, borrowers remain under this qualifying rate.
Change can be difficult, especially when it is rapid and seemingly unpredictable. It may require an adjustment in spending habits and some tough discretionary choices, but we will adapt and get through this.
Written by:
Trevor Bumstead
Mortgage Agent | Dominion Lending Centres – TLC Mortgage Group
