The time has come: before the end of 2017, we will see the Bank of Canada (BoC) increase its interest rate, if not at next week’s meeting on July 12, setting off changes throughout the mortgage and financing industries and increases to mortgage rates.
So, what does this mean for you as a consumer?
Some economists are projecting a full percent increase, from 0.5% to 1.5%. When the federal rate increases, so do the rest of the interest rates. Anyone with a variable rate mortgage (i.e. prime rate + a percentage, or floating rate) will see a direct increase to their payments, as their rate will rise with the federal rate.
However, this doesn’t mean it’s a cause for panic. Yes, your mortgage lender will offer you a chance to lock in your floating rate into a fixed rate at any time during the term (subject to your individual mortgage terms), but that doesn’t always mean it’s a better deal. Sometimes, the increase in floating rate is actually a better deal for you in the long run than locking in. For example, your bank may require you to sign a new 5-year term, regardless of the remaining length of your existing term.
If you’re a new buyer looking to hop into the market, go visit your mortgage broker today, if you haven’t already. You need to secure a pre-approval as soon as possible, which will give you, likely, a 120-day rate hold on that day’s best rate. It buys you some time to find the perfect property without having to worry about what the government’s doing.
Right now, most new high-ratio (those with less than 20% down) mortgage applicants are adjudicated at the 5-year benchmark rate (4.64%). The reason for this is to allow for a true test of an applicant’s ability to pay the mortgage. It’s easy to qualify at the best 5-year rate, but what happens when your mortgage rates increase? Even by a quarter of a percent? This federal change came into play last year, and it was designed to offset panic in a situation just like this.
RBC hiked their own interest rates earlier this week, and the other major lenders likely aren’t far behind. Talk to your mortgage broker, and if you need recommendations, give us a call at 250-382-6636 or email us at email@example.com.
Until next week.