Homeowners and homebuyers in Brampton, Toronto and the GTA are hearing in the news that inflation is a major concern and will lead to higher rates. Please stay away from the fear mongering and get in touch if you have concerns.
Yes, there are inflationary pressures, and the Bank of Canada did indicate in their last rate announcement that rate hikes could take place earlier than previously indicated, by mid-2022, which means variable rates that rise and fall in conjunction with the Bank’s key rate will start climbing.
Views among economists vary as to how many hikes we’ll see in 2022 and 2023 because no one really knows whether inflation is truly transitory given our current supply chain issues, or even if inflation won’t be a long-term issue at all. Some economists are taking the reverse viewpoint, anticipating that we’ll move into more deflation than inflation. History has shown that predicting rates and inflation are virtually impossible so it’s best to always keep a cool head and don’t panic.
Keep in mind that even with the projected increases, we’ll still be in an ultra-low-rate environment and an incredibly stable market. We’ve also seen increases before to only see them decrease again. But all indicators do point to rates likely rising, so here are answers to the questions I’ve been getting:
Will there be an impact on my current mortgage? If you have a variable rate mortgage, as rates rise, so too will be the amount of interest you pay. While your payment often doesn’t increase, you’ll pay less principal and more interest.
If you have a fixed-rate mortgage, which is based on the bond market, those rates have already been trending slightly upward, although with a fixed mortgage, you aren’t affected until it’s time to renew.
Whether you are currently fixed or variable, consider taking advantage of your prepayment privileges to increase your payment so you are paying down more principal and then at renewal, you are already accustomed to paying the higher amount.
Should I refinance my current mortgage now? Many over the last year have taken advantage of low covid mortgage rates to refinance their current mortgage to get a lower rate, for debt restructuring, renovations, or to help a child buy a home. If you feel this is a good opportunity for you now and want to access these low rates that won’t be around too much longer, please get in touch for an analysis of whether it makes sense for you.
Should I lock in my variable rate mortgage? That depends! A key question to ask yourself is – why pay more money than you must? It will take several prime rate increases for variable rates to be on par with a fixed rate, and you are likely better off sticking with your original strategy of focusing on payment versus rate. Preparing for higher rates is different than locking in. You can prepare by increasing your payment amount if your budget allows, so you are paying down more principal and building a buffer for later.
But if it’s going to keep you anxious and awake at night then let’s talk about your conversion options. Remember though, you should be confident you’ll stay in a 5-year fixed mortgage for the entire term. Breaking a fixed mortgage can result in some onerous penalties that catch so many by surprise. If you aren’t sure you’ll stay in the mortgage for 5 years, the interest rate risk of a variable mortgage may be a better option than the penalty risk of breaking a fixed mortgage.
What if my mortgage is coming up for renewal soon? Don’t feel rushed or pressured by a renewal letter or call. Let’s discuss your options. We’ll review your renewal offer together and I’ll shop around to see if it’s really the best deal available. If you have too much other debt, we can also discuss if this may be the time to roll that debt into a new mortgage to boost your cash flow and save on interest costs.
Should I jump into the market now? The prospect of higher rates could cause a sense of urgency among homebuyers in Brampton, Toronto and the GTA to get their mortgages before those increases take place. My advice never changes – buy when you are financially ready. Don’t jump the gun just because rates “may” go higher. But, if you’re thinking about buying, I can arrange a pre-approval, so you’re protected from rate increases for up to 120 days while you shop around. A pre-approval ensures that you shop within your price range and will give you the confidence to move quickly when you find your dream home.
Should I get in touch with you? Yes, for sure. Getting prepared for higher rates is not about panicking, it’s about being prudent. I can help you determine your best strategies to prepare for rising rates! I have access to a wide range of lenders and know the right questions to ask to assess your situation and make sure you have the best mortgage strategy for whatever is ahead. And of course, I’m here to help homeowners and homebuyers in Brampton, Toronto and the GTA at anytime! Contact me today.
