Mortgage rates are expected to increase when the Bank of Canada reviews interest rates April 13.
We can appreciate our clients concerns surrounding the anticipate hikes expected over the next year - two. With almost all lenders, this will mean an increase to your regular scheduled payment. If your in a variable rate, it is important that you understand what this will look like and what your options are.
Currently many of our clients have variable interest rates sitting between 1.8% - 2%. If you were to lock in today, you would be locking into whatever the closest term is remaining on your variable mortgage – a 1, 2, 3 or 4 year fixed rate.
The approximate rate on these terms vary by lender and mortgage type.
4 Year – 3.69% - 3.94%
3 Year – 3.44% - 3.79%
2 Year – 3.29% - 3.49%
1 Year – 3.09% - 3.19%
The above fixed rates mean that in order for your variable rate to reach the fixed rate, Prime would have to increase on average between 5-8 times by 0.25% each time to reach where your fixed rate would be. It is possible (however uncommon), for the Bank of Canada to increase rates by 0.50% in a review.
Options:
1. Continue in current variable rate - Many mortgage professional feel this is still the best option.
2. Lock in your current variable to the fixed rate by calling your mortgage lender
3. Break your existing mortgage with a 3 month interest penalty and enter into a shorter term fixed rate to receive a better rate
4. Break your existing mortgage with a 3 month interest penalty and increase your amortization to reduce your payment.
We are of course always more than happy to advise you as to what these scenarios look like for you and options specific to your mortgage.
What would a 1.5% increase looks like on a $300,000 mortgage?
This would increase your monthly payment by $225.
Curious as to when the Bank of Canada reviews rates? Here is their schedule:
Wednesday, January 26*
Wednesday, March 2
Wednesday, April 13*
Wednesday, June 1
Wednesday, July 13*
Wednesday, September 7
Wednesday, October 26*
Wednesday, December 7