Hi everyone!

It's been a while since I've posted an update here, so it's time! 

Today we're anticipating the Bank of Canada to increase its policy interest rate, and I expect we'll see a 0.25% increase. This will translate into a corresponding increase in prime rate at most lenders within the following days. 

What does this mean?

• First of all, don't panic! This rate change is minor, and while we're expecting more this year it's going to be a careful, slow increase. Things won't change quickly.
• With tons of uncertainty on the world stage right now, the BOC will be watching things very closely and trying not to move upwards too quickly. What happens with rates from here will depend on how the situation overseas continues to unfold and impact us here at home.
• On an average mortgage amount of $400,000 and 25 year amortization this rate increase would be a payment change of about $46.59 per month. Important to be aware of, but not major.

A few things to consider:

• The reasons we (myself included) choose variable rates are for more than just the current interest rate. Consider the lower prepayment penalty you have now (vs. fixed) as well as the average interest rate over your term. We don't know what the future will bring, but if 2020 was any indication there are plenty of reasons for rates to come down just as well as up. 
• Yes, you can typically convert to a fixed rate mortgage now (if you choose), BUT I rarely advise it unless something in your life has changed. Here's why:
  • Converting to a fixed rate today would mean converting to today's best fixed rate, which is much higher than your variable, even after the rate increase (i.e. 3%+ for a fixed rate now).
  • You'd then be at risk of the potentially much larger prepayment fee of a fixed rate. Switching now could negate the very reasons you chose variable in the first place. 
• Fixed payments vs. variable payments - 
  • Those of you with payments which increase with prime; Your amortization remains the same, the bank will simply adjust your payment to match the new rate. You can still benefit from increasing your payments even more (paying the mortgage off sooner), although this is a personal choice. 
  • IF your payment will change (most except TD clients) you can expect a message from your lender soon and your payments to change within a month or so (not immediately, it takes time to process the change). 
  • Some of you (TD customers) will not notice your payment change when rates rise. IF this is the case I strongly suggest increasing your payments now, up to an amount that you are comfortable with. We can discuss this, but generally you can increase your payment by up to 15% or more without penalty, and now is a great time to do so. 

The surefire way to rest easier when rates are changing is to be proactive. Increasing your payments and/or making lump sum payments will get your mortgage paid off sooner and will lower the future impact when rates change. Now is also a good time to ensure you are actively paying off other debts (credit cards, lines of credit, etc.) since many of those products can also be impacted by prime rate, and often have much higher rates than your mortgage. And if you're finding those other debts are hanging on longer than you'd like, then let's discuss a refinance to look at paying them off. 

If you're concerned about the change I'm here to help. Message me here or book a call at https://calendly.com/hhmtg/current-client-q-a-session

To sum it up - Unless something in your life has changed significantly, my advice is to stay the course. You chose variable for many very good reasons - it's unlikely those reasons have changed!