In Vancouver we like to talk about two things: weather and real estate. It’s grey and raining (no surprise) and the Bank of Canada has raised their key interest rate (also no surprise). This is the fifth time since summer 2017 where they increased rates for the first time in 7 years.
What does this mean for you?
Check out my recent Breakfast Televison interview for the Coles notes version or keep reading…
If you have a variable rate mortgage your interest rate will have increased by 0.25%. This equates to an increase in payment of approximately $13 per month per $100,000 of mortgage balance. For example if your mortgage is $500,000 your payment has gone up by $65 per month.
If you have a line of credit balance your interest rate will have increased by 0.25%. This equates to an increase in payment of approximately $21 per month per $100,000 of line of credit balance. For example if your line of credit balance is $500,000 your payment has gone up by $105 per month.
If you are in a fixed rate mortgage there is no direct impact on your mortgage or payments.
If you are in a variable rate mortgage it’s time to have that conversation. Start by asking yourself why you took a variable in the first place. Was it to take advantage of the lower rate versus a fixed term, or for another reason such as a lower penalty if you needed to pay out early? Revisit your cash flow and determine how many more of these increases you can stomach and talk to your mortgage professional about your options. If you can’t sleep at night worried about where rates may go then it’s time to lock in.
If you are in a fixed mortgage you are not immediately impacted but rates do eventually trend in the same direction. Did I mention that fixed rates increased slightly even before this announcement?
Are you concerned about mounting debt and further rate hikes?
You have several options at hand depending on your situation. There are strategies to pay off your mortgage faster now so that you have a smaller balance at renewal when rates are higher. There are also strategies to lower your payments now to increase cash flow for paying off other debts or to build up savings. You can also refinance your mortgage to payout other debts to lower your overall costs and lock in a rate today.
Rate hikes impact all of us. The best strategy (without a crystal ball) is to plan ahead. Work with a mortgage professional to create a plan, get ahead of future increases and now how to respond when they are announced. Looking for a mortgage professional to work with? Contact me today!