I wanted to address any concerning developments regarding the rate increase from the Bank of Canada today and share some insights that may impact your financial decisions.
As you may have noticed, the predicted market conditions have not materialized as expected. Rather than a projected halt in raises for 2023 and potential decreases in 2024, the rates have taken a disappointing turn. This situation has understandably caused frustration and uncertainty among many individuals.
With inflation still higher than anticipated and the recent release of unemployment numbers indicating a lower-than-desired rate, we were prepared for this rate increase to occur today. This impending hike could push many people to their financial limits, adding further strain during these challenging times.
Given the circumstances, I would like to offer some considerations to help you navigate this situation. If you believe another rate increase poses significant challenges for you, consider a rate lock-in. However, it’s important to note that fixed rates are also quite unfavourable at the moment, owing to the recent spike in Canadian bond yields, which shows no signs of abating. On the other hand, if you are willing to weather the storm with the hope that rates will eventually decline within the next 12-24 months, waiting it out could be a viable option.
One advantage of remaining in a variable-rate mortgage (which is the only silver lining currently) is that the pre-payment penalty is limited to three months of interest. However, should you decide to lock in your rate and rates subsequently decrease, you would likely have to ride out the higher rate for the duration of your term, as breaking the term would result in significant penalties. The penalties for fixed-rate mortgages are calculated based on the difference between your rate and the prevailing rates at the time of breaking, along with the remaining time left in your term. The wider the gap between rates and the longer your remaining term, the higher the penalty.
If you are in a variable rate and locking in is the most prudent choice for your circumstances, please reach out, and we can work together to see what options we can get in place for you.
If you currently have a fixed-rate mortgage and plan to renew it in the next few years, we want to ensure that you are prepared for higher mortgage rates than your current rate. This will result in a higher payment for you. To help you adjust to this potential increase, some of our clients have chosen to take advantage of their pre-payment privileges. They are opting to increase their regular payment by 10-20%. This not only helps them pay down the principal faster but also assists in adapting to the higher mortgage payment. Please let us know if you are interested in exploring this option further.
Lastly, if you are fortunate enough to have some existing equity in your home we can potentially look into a refinance of your existing mortgage in order to pull some of that equity out to have on hand. We have had some clients really feeling the crunch of the current economic environment and rather than struggling to make ends meet each month have decided to access the equity in their home to weather the storm. Regulatory guidelines allow us to get up to 80% the value of your home out if needed. If you are interested in this option we can certainly talk further.
Your financial well-being is of utmost importance to me, and I am here to support you in making informed decisions. If there is anything I can do to assist you, please don’t hesitate to let me know.