Instead of worrying about whether mortgage rates have increased or will increase, use this time to review your finances and to strategize. Your first order of business should be to speak with your mortgage broker, whose free professional advice will help you find the lowest rate available.
You’re Not Alone…
In fact, most Canadian home owners worry about their upcoming mortgage renewals, according to a recent survey of Canadian borrowers. While over half of those surveyed expressed concern over potential rate hikes, half also claimed they had a strategy in place to allow for such an event.
So, what, exactly, are these Canadians doing to prepare for the possibility of a higher rate? Well, most of the survey’s respondents said they would meet the challenge by limiting their spending in other areas of life. A much smaller number said they would go into their savings accounts to deal with a potential rate increase. Very few said they would resort to taking out a loan and/or selling their home.
Most said they probably wouldn’t switch lenders as part of a plan to deal with higher mortgage rates. Indeed, some respondents admitted they didn’t know that switching lenders was even a possibility. Very few of the mortgage borrowers surveyed felt comfortable with their ability to absorb an increase in their rates.
The Source of the Problem
In less than a year, the Bank of Canada’s interest target rate has gone up 350 basis points over six back-to-back increases. This has not only affected those with adjustable-rate mortgages, whose payments automatically rise with the BoC’s rate hikes, however. Many borrowers who have been paying by way of static-variable rates have run up against the increasingly high interest on their monthly mortgage, and borrowers who managed to get low fixed rates one and two years ago will see the biggest increases in their payments come renewal time.
As it stands today, borrowers on a 5-year fixed rate can expect to pay a hundred dollars more for every 100K they borrowed.
So, if their initial rate was low – one or two percent, say – facing a five or six percent rate hike at the time of renewal could be a real problem, especially at a time of continually rising prices at the grocery store and gas pump.
Don’t Panic … Plan!
As stated at the start of this article, your first order of business should be to schedule a meeting with a qualified mortgage broker. Review your finances. Then, draw up an honest overview of your current budget. Could you reasonably absorb a potential increase in your rate? Are there parts of your spending life that could be adjusted if need be? Talk to a mortgage professional to make sure you can answer these questions and deal with any rate hikes in the future.