First Bank Of Canada Rate Increase Expected in 5 Weeks
3, 2, 1, LIFTOFF…
It is no longer a question of IF rates will rise, it is now a question of when and how fast.
This morning the Bank of Canada (BOC) announced it’s keeping interest rates the same but changed it’s tone about future rate increases saying:
“With overall economic slack now absorbed, the Bank has removed its exceptional forward guidance on its policy rate.”
With that wording forecasters will nearly unanimously agree that the Bank of Canada will increase their overnight rate by 0.25% at their next meeting on March 2nd. For variable mortgage (and line of credit/loan) holders, this would likely increase their rate by 0.25%.
Prime rate is currently 2.45% (for most lenders), Typically when the BOC increases their interest rate mortgage/loan lenders will increase their rate by the same amount. Meaning consumers could see their Prime Rate at 2.70% in the near future with additional increases predicted.
Should Borrowers Move Their Variable Into Fixed Mortgage Rates?
Most variable rate mortgages allow you to convert into a fixed mortgage rate at anytime. Is that the best thing to do at this time? 3 questions to ask…
What are your goals? Variable rate holders have the luxury of paying out or changing their mortgage at anytime without facing large penalties. This allows flexibility for any goal changes or unexpected events that arise in life. Fixed rate mortgages can come with $20,000, $30,000, $50,000 or higher penalties (depending on a number of factors) which could affect future decisions. Over the years we have seen this affect those looking to sell & buy, renovate, invest in rental properties, consolidate debt, leveraging equity during illness, and the list go’s on. So before you lock in ensure you are clear on your goals during the locked in term and any possibilities that could arise financially.
What could you lock into? Call your mortgage lender and ask what your rate would be to lock into. Currently variable rates are in the 1.50% interest rate range, 5 year fixed rates are in the 3% range. In this case the Bank of Canada would need to increase interest rates by 1.50% to get to the level of the fixed rate. If considering locking in, contact your lender and email us with the options they provide so we can advise if there is any additional negotiating room.
How fast will rates rise? Some economists are predicting rate increases of 2.00%. Others are predicting rate increases of 0.50%. The Bank of Canada meets approximately every 6 weeks and decisions/announcements are made at each of those meetings. Keep in mind, after increases their could be decreases if the government needs to stimulate the economy again. If you will be stressed out with every news announcement about rates where you can’t sleep at night then you may want to consider locking in. If you can “keep calm and carry on” hearing news releases then you may want to stay variable. Nobody has a crystal ball knowing exactly where rates will go, so it’s important to make the best decision for you.
Watchful Eyes on Fixed Mortgage Rates
There is also pressure on fixed mortgage rates to rise.
The Bank of Canada also said today:
“The Bank will keep its holdings of Government of Canada bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. At that time, the Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.”
The bond market effects fixed mortgage rates. The Bank of Canada has been very active in the bond market which has helped keep fixed rates low. As they wait for the market to react to any variable rate changes, they will look to reduce their involvement in the bond market. This could increase pressure on fixed rates to rise.
Anyone that will be looking to obtain a new mortgage (or restructure their existing mortgage) should look into it sooner than later.
Even those thinking of getting a new mortgage, but are unsure, can lock an interest rate in today for the next 4 months and decide.
Opportunity Of High House Prices & Today’s Rates
As we all know house prices are at their newest record highs.
If there is any financial goals you have been thinking of now is an opportune time to leverage the equity in your home at today’s low rates.
Examples of recent goals we have helped our existing homeowner clients achieve:
- PARENTS leveraged the equity in their home to help their kids buy a property (without affecting their monthly budget)
- COUPLE consolidated mortgage and other debt together (and reduced amortization helping them become mortgage free sooner)
- INVESTOR refinanced his home to purchase an investment property (and a collector car he had wanted for years)
- FAMILY used the increased value of their home to renovate (and gave them the extra space needed)
- COUPLE borrowed using today’s low rates and invested the funds at a guaranteed return (giving them extra cash flow in their house monthly)
Call anytime to discuss any scenario you have been thinking of executing or start a new application here: https://approveu.ca/apply/
With equity there is many types of lending options that can be accessed to achieve your desired outcome (even for those with challenged finances).
Please reach out anytime and feel free to share this email with anyone you think will find it useful.