The Bank of Canada (or BoC), has raised the key overnight rate by 1.00% to 2.50%. In all likelihood, in the coming hours and days, all lenders and banks will increase their prime rate to 4.70%. This represents the largest interest rate hike since 1998.

What you need to know:

1.      If you have a variable rate mortgage, your payment will increase to match the rate hike. Your lender will send you correspondence to let you know what your increased payment will be. Note – in very few cases, some lenders do not adjust the rate until your payment is not enough to cover the interest.

2.      If you are preapproved to purchase a property, your preapproval amount will decrease. If you have a preapproval with our office, we will be contacting you over the next week to let you know your new preapproval amount.

3.      Before today’s rate hike, we had many calls asking about holding or locking in a rate. This was a raise in BoC prime, so everyone’s rate is going up (preapprovals and existing mortgages), and there is nothing to lock in or hold.

4.      Rate locks are generally only for fixed rates. Lenders do not hold variable rates. If you already have a written commitment from a lender for a mortgage closing over the next 120 days, then your variable rate spread is held, but your rate will still go up as the bank prime rate increases. Variable spreads are not held on preapprovals.

This rate hike is an aggressive move in order to curb inflation, and could very well send our country into a recession. Every homeowner with a variable rate will see a significant increase to their mortgage payment.

What Should You Do?

1.      Don’t panic! Take a breath, and consider your options below.

2.      Prepare and adjust your budget to account for the higher payments to come. If you think you will have a monthly budget shortfall, you might have options to refinance, bringing me to my next point.

3.      Think about getting cash ready by refinancing to cover your shortfall. If you do have a budget shortfall or are worried about incurring more unsecured debt to make ends meet, get ahead of the problem by considering a refinance. Yes, it might seem counter intuitive to borrow more funds when rates are high, but in our opinion, it is always better to be prepared with extra cash savings to weather through the higher interest rate cycle. Contact our office for a 15 minute conversation to see if a refinance is right for you.

4.      Finally, check with our office to see if you might qualify for a super low variable rate from our low-rate lender. Our rates can be as low as Prime – 1.20% (now 3.50%) with our low rate lender. So if you are with a 5 big bank on their variable rate, there might be an opportunity for you to save money by switching. IMPORTANT! These low-rate mortgages are harder to qualify for and have to abide by strict B20 guidelines. Not everyone will qualify, but it might be worth it to check. Contact our office by responding to this email, and we will setup a time to chat with you and see if this is a possibility.

Final Thoughts

You might be thinking that you should lock in at this point. Our suggestion – don’t lock in. Right now, fixed rates have peaked, and will soon start to come down. If you lock in now, you will be locking in at the peak of the interest rate cycle. This is the point in time where you have to hold steady, and weather out this part of the interest rate cycle. Remember, in previous rate cycles, the rates only stay at their height for a limited amount of time, and then start coming down. In the long run, you’ll still save more money by sticking to the variable rate.

Want to chat about your mortgage or explore switching to a lower rate option?

Contact us below or get started here.