Dear clients, friends, and family.
If you have watched the news in the last few days/weeks you may have seen that fixed mortgage rates have been on the rise. Also, there is news that the Bank of Canada might increase the benchmark rate. The sky isn’t falling! Rates have been historically low for many years now and most economists anticipated some upward movement in 2017 and 2018.
Some people believe these low rates have actually caused the hot housing market in Canada (especially Vancouver and Toronto), and this is why we saw the government intervention by way of the BC Foreign homebuyers tax, but that’s not really the case. The main factor for the movement in mortgage rates lately is that the bond rates have increased substantially over the last couple of weeks. This has forced fixed rates to go up (bond rates are one of the key costs of funding mortgages in Canada…it’s the price of money, which is bond yields). When bond rates go up, fixed mortgage rates usually follow.
Please know that while we may be seeing a rise in mortgage rates, they still remain incredibly low. Below 3% is historically unheard of…make no mistake, we are still in an unusually low-rate environment.
Here are some examples of how minor rate increases would impact mortgage payments:
• For a $300,000 mortgage moving a five-year fixed rate mortgage from 2.64 per cent to 2.94 per cent: $1,364 to $1,410. $46 more per month.
• On the same amount, the variable rate mortgage hike from 2.7 per cent to 2.85 per cent: $1,373 to $1,396. $23 more per month.
• For a $600,000 mortgage, the same changes in rates would increase the monthly payment by $91 and $46, respectively.
• For a $1 million mortgage, the same changes in rates would increase the monthly payment by $125 and $93, respectively.
If you are considering the purchase of a new property, or would like to renegotiate your existing mortgage, now is a great time to look at your options!
The latest rumours are that the Bank of Canada is going to increase the benchmark rate (which impacts the prime rate) on their next announcement date of July 12th, 2017. But right now it’s a game of wait and see as they haven’t gone up in over 5 years. However, If rates do change, your new rate will go into effect August 1st, not immediately.
Personally, even if the prime rate does increase, I will be sticking with a variable rate mortgage!
If you are struggling to make up your mind between taking a fixed rate or going variable, why don’t you enjoy the Canada Day Long weekend, and give me a shout sometime next week. I would love to share a strategy with you that allows you to take advantage of the variable rate while gaining some of the security of a fixed rate.
My goal is to provide you with the best council possible so you can make the best mortgage decisions for you and your family!
Happy Canada Day!