Once again with Bank of Canada has raised it’s overnight lending rate and Benchmark. Benchmark* is now 5.14% (This is the rate used to qualify for a mortgage) Prime is currently 3.45%.

If you are nervous, now is the time to lock-in as the feds will be increasing the rates again in the near future.

Am I worried, NO! The good times had to end at some point; I just didn’t expect them to trigger this many increases this quickly.

The ongoing questions I receive, “Should I lock in?” “How many more increases are coming?”, “You’re the expert, what would you do?”

Q: “What should I do?”
You should do whats right for you. Right now I am reviewing mortgages that are up for renewal, and the majority of the rates are in the mid to low 3% some 2.89%-2.99% (Depending on the time of year), but most of them are 3.19%-3.29% which is right where we are today with the high ratio discounted rates. Non discounted rates are sitting 3.49%-3.79%

Depending on your lender, If you want to lock-in your rate it will be anywhere from 3.49%-3.79%. Remember there is no charge to lock-in, you can call me, Linda or the lender directly. We are here to help.

Q: “You’re the expert, what would you do?”
Again, you should do whats right for you. If this causes you to lose sleep, lock-in!

I will be staying the course, and I am not a fixed rate kinda girl. I do not like being trapped by rate. I do not like paying more interest to principal. I use the variable and a strategy to ensure I pay more to principal than interest. I went digging through my archives to find a graph of the strategy, see below for the chart and the math.

Remember, the increase of .25% is equivalent to $12.00 on the $100,000.00 for example if your mortgage is $300,000.00 you will see an increase of $36.00 a month or $18.00 bi-weekly on February 1/2018
Know that I am here to support you in any way I can. If you’d like to discuss further, please do not hesitate to call or email me.

Below is a repeat of the newsletter from last month about the math, rates and the Bank of Canada Announcement.

Here’s the math:

Mortgage Amount: $100,000.00 – 25 year amortization

Current Payment: $435,76 at Prime 2.70% – 0.50 = 2.20%
New Payment: $448.15 at Prime 2.95% – 0.50 = 2.45% (Bank of Canada Increase of .25%)
A difference of $12.39 on the $100,000.00 – 25 year amortization
If you have a mortgage of $300,000, you will see an increase of 3 x $12.39 = $37.17 a month or $18.58 bi-weekly

Currently, I am taking my own advice and staying the course. There are many reasons to maintain the use of a variable rate mortgage as outlined below:

The interest rate calculation

More of your payment goes to principal, especially in the first two years.

The penalty is only three months interest.

The ability to switch over to the fixed rate market at any time with no penalty or cost. Remember, once you switch to a fixed rate you cannot return to the variable until renewal or pay a high penalty.

78% of first-time homebuyers will terminate or move their mortgage before the end of their five-year term. Flexibility is key.

As my client, you will be aware that I have always put a strong emphasis on creating an emergency fund, TFSA and topping up your RSP/RESP funds before paying down your mortgage. However, if you have already done this or you are truly concerned about the possibility of the BoC increases and would like to stay in the variable rate market, there is a strategy I like to use. See Below

Instead of making your regular variable rate payments, we would switch your payment to a “fixed” rate payment, for example; If the fixed rate is currently 3.69 %, we will change your payment to reflect 3.69% while maintaining your variable rate.

Mortgage amount: $100,000.00 – 25 year amortization
Payment $509.35 – Interest rate: 3.69%
Variable rate payment: $470.68 at Prime 3.45% – 0.50 = 2.95%
The difference between $509.35 – $470.68 = $38.67 would go towards your monthly principal

For example:
If you had a $300,000.00 mortgage, an extra $116.01 would go directly to principal each month, saving you interest and limiting the amount of interest you would pay.
Other reasons for choosing a variable rate, the repayment of principal – see the strategy at the bottom of the newsletter and the penalty, three months interest.

I use this strategy for my own mortgages. If you have questions or concerns about the possible Bank of Canada rate increase, please call me. YOU have options. I am here to support you, now and always.

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