Rate increases: Your options with Haille Monteiro
As I am sure most of you have heard and experienced first hand - the Bank of Canada is taking an aggressive approach to inflation by repeatedly raising rates, and may continue to do so this year. Prime is currently 4.70%.
The Bank is stating that inflation in Canada is higher and more persistent than expected and will likely remain around 8% for the next few months. The biggest drivers are the war in Ukraine, ongoing supply disruptions and excess demand in the Canadian economy. "With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today," the bank stated. It also indicated that more hikes are to be expected at a pace guided by the Bank’s ongoing assessment of the state of the economy and inflation.
Unfortunately, I do not have a crystal ball to know the future market conditions and when interest rates will settle. Too many factors are currently driving inflation, however, once these are corrected, I do believe that we will see rates hedge lower.
What I can do is provide you with support and help guide you through this with some possible strategies to assist you with making sound financial decisions based on your current mortgage and a view to the next few years.
If you are in a variable rate mortgage or a fixed rate and are struggling with overall payments or worried about future variable increases call me to discuss your current rate and the possibility of one of the following considerations.
Current variable rate converting to a fixed rate mortgage. Depending on your lender you will need to meet the original term commitment. Example if your original term is 5 years and you are 2 years into the term the minimum fixed term you can convert to is 3 years. You could also convert to a 4- or 5-year term if offered by your lender.
If your variable rate is discounted off prime less then .30% and you like the variable flexibility you can look to switch a lender offering you a better variable discount.
Switch to a lender that has a static payment on their variable rate mortgages to avoid a payment increase each time prime changes. You may already be with a lender that does not increase payments. The discussion about a trigger point is important.
If you have a weekly/biweekly accelerated payment change your payment to NON accelerated or to a monthly payment. Your payment should decrease.
Switch to a new lender and lock in for a 2–3-year term to allow time for the market to normalize, you don't have to choose 5 years. The switch may also allow us to extend your amortization back to 25 years if currently less to decrease your payment.
Depending on your current lender there may be the opportunity to fix only a portion of your mortgage and keep a portion variable to try to hedge the market. You may have the opportunity to switch to a lender that offers this option if your current lender does not.
Consider a refinance to pay off unsecured debts that will free up cash flow. We can do a shorter fixed term to allow the market to settle and inflation decrease.
Consider a refinance that will add a line of credit for future needs - it is also better way to carry debt if needed as rates are much lower then credit cards and unsecured lines of credit.
If you have a great rate or a large penalty to break your current mortgage but need to clean up debts for better monthly cash flow, a 2nd mortgage could be the solution.
Choose to stay the course as the variable rate you have makes sense and their may be future declines once the market settles.
Things to keep in mind
Home values have been decreasing and this can factor into the amount of funds you can access if considering a refinance. If you qualify, we can get up to 80% of the current equity. Comparables are still being used for previous periods where house prices were higher. Now is a good time to look at getting as much as you can if you have a need to consolidate or access equity for home renovations, for example.
We are seeing the bond markets start to adjust and some fixed rates have come down this week which is great news for some of the strategies and qualifying criteria. We are required to qualify you to afford a mortgage payment based on the greater of the benchmark rate (5.25%) or the contract rate plus two. As an example Prime + 2 (6.70%) is greater then 5.25% and you would have to qualify at 6.70% even though your mortgage payment is based on 4.70%.
As a mortgage agent I am here to help you navigate the best solution for you and your family now and in the future. Please reach out at anytime to discuss your options and see how I may assist you.
By: Haille Monteiro
Mortgage Agent
Mortgage Alliance Greater Golden Horseshoe
LIC#13121
