After the Rate Hike... What's Next?
On July 12th, for the first time in seven years, the Bank of Canada increased the overnight rate by .25%, withdrawing some of the stimulus that was needed after the oil price collapse and 2008 financial crisis.
Variable rate mortgages and lines of credit will see higher rates and modest payment increases. Fixed-rate mortgages – which are based on the bond market – had already been trending slightly upward, although if you have a fixed mortgage, you aren’t affected until it’s time to renew. Keep in mind that this is a very small increase, and we’re still in an ultra-low rate environment and an incredibly stable market. We’ve also seen increases before to only see them decrease again. But rates have risen, so here are answers to the questions I’m getting:
- Should I jump into the market now?
- Actually, my advice is always the same: buy when you are financially ready. Don’t jump the gun just because rates “may” go higher. But by all means, if you’re thinking about buying, I can arrange a pre-approval so you’re protected from rate increases while you shop around.
- Should I lock in my variable rate mortgage ASAP?
- That depends. Your new rate with the hike is probably still less than current 5-year fixed rates, and you’ll still likely pay less if there is another .25% increase. So why pay more money than you have to? Stick with your original strategy of focusing on payment vs. rate. But if it’s going to keep you awake at night – or the few extra dollars are hard to find in your budget – then let’s talk about your conversion options. Remember though, you should be confident you’ll stay in a 5-year fixed mortgage for the full term. Breaking a fixed mortgage can result in some tough penalties.
- What if my mortgage is coming up for renewal?
- Don’t feel rushed or pressured by a renewal letter or call. Let’s discuss your options. We’ll review your renewal offer together and I’ll shop around to see if it’s really the best deal available. Got too much other debt? This may be the time to roll it into a new mortgage to boost cash flow and save on interest costs.
- Should we talk?
- Yes for sure. You should have confidence in your mortgage plan and that’s why professional mortgage advice is so critical. I have access to a wide range of lenders and know the right questions to ask to assess your situation and make sure you have the best mortgage strategy.
More Stress Testing!
The Office of the Superintendent of Financial Institutions (OSFI) is proposing the introduction of a new stress test for uninsured mortgages i.e. with more than 20% down. If implemented, these mortgages will be qualified at 2% higher than the borrower’s contract rate. Why? Similar to insured mortgages which are currently stress tested, the government wants to make sure homeowners can afford their mortgage if rates rise. This new stress test is still under discussion, so stay tuned for any new guidelines by year end.