As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement. As predicted the Bank of Canada has increased their Overnight Rate by 0.25%. When this happens, it typically means that your Prime Rate is going to increase as well but not always by the same amount. It can also mean that not every lender will adjust their prime rate the same way – even now we have one of the major banks prime rate being 0.15% higher than everyone else’s. Keep an eye out later today for further updates on your lenders’ prime rate.
Now Don’t Panic! based on this news, it might be time to assess your current mortgage situation and how we can ensure you are making the right choices for your long-term goals. Now is the time to focus on one of the following key areas:
Make a Plan: You need to do a financial benefit analysis based on what your short and long-term plans are. If you are planning to move in the next few years a variable rate might still be a better option with the lowest penalty, but if you are in your forever home and have a key focus on being mortgage free by a specific timeline such as retirement or sooner, than a fixed term may be more suitable. Everyone’s situation is different so having a customized mortgage that meets your needs, and not the lender, is always the way to go!
Get some advice from me, your Mortgage Broker (not your lender), on what this increase means for you and your situation. Lenders and the media can create a panicked frenzy which might encourage you to think about locking in now in fear of rates going up even further. This means more profit for the lender, a longer commitment from you and difficultly breaking that mortgage later!
To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision today:
“Recent data have bolstered the Bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy. The Bank acknowledges recent softness in inflation but judges this to be temporary. Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time. The global economy continues to strengthen and growth is broadening across countries and regions. The US economy was tepid in the first quarter of 2017 but is now growing at a solid pace, underpinned by a robust labour market and stronger investment.
Canada’s economy has been robust, fuelled by household spending. As a result, a significant amount of economic slack has been absorbed. The very strong growth of the first quarter is expected to moderate over the balance of the year, but remain above potential. Growth is broadening across industries and regions and therefore becoming more sustainable. As the adjustment to lower oil prices is largely complete, both the goods and services sectors are expanding. Household spending will likely remain solid in the months ahead, supported by rising employment and wages, but its pace is expected to slow over the projection horizon. At the same time, exports should make an increasing contribution to GDP growth. Business investment should also add to growth, a view supported by the most recent Business Outlook Survey.”
Fixed term rates have increased slightly since the last announcement with a five-year fixed term ranging from 2.69% to 2.89%. If your variable interest rate is higher than this, it might be worth us revisiting to see if we can make some changes and save you unnecessary interest. Don’t forget the lower rates quoted here might have specific conditions for qualifying and remember that the prime rates and fixed term rates are impacted by two different sets of economic drivers. Therefore, increases in fixed rates doesn’t always mean the same increase in prime rates and vice versa.
Based on this recent announcement, and the anticipation that the prime rate will remain low and not likely increase for another few months, unless you feel otherwise, I’d recommend that you remain with your current variable rate product if the interest is still lower than a fixed term rate right now. However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and if it is suitable for you.
If you have accumulated some other higher interest debt, this might be the best time to consider a refinance to get you back on track and consolidate. Some of us have not made the most of these low payments and have taken advantage by spending more and more. How much do you have saved up or how closer are you to your mortgage burning party because you have made extra payments on your mortgage? Or maybe you just got a little carried away and have some high interest credit card debt that you can’t seem to pay off in full each month. It is never too late to get back on track. Let’s spend some time and look at how we can consolidate these before interest rates go up further!
Reach out to me for a pro bono consultation to review YOUR situation. DON’T listen to the lender that might be calling you to get you to lock in your amazing variable rate based on fear. Let’s review the math, the facts and then decide what is right for you! I’m here to help you save unnecessary interest by keeping more money in your pocket and not anyone else’s!
I’ll be in touch again for the next announcement on September 6, 2017 and don’t forget to feel free to share this with your friends and family.
Accredited Mortgage Professional