It’s no big secret that mortgage rates are on the rise and increases are expected to continue through 2019. But will you be able to afford payments at a higher rate?

If you are currently in a variable rate or fixed term shorter than five years, then you almost certainly passed the stress test, which means that you have already been tested against higher rates. Therefore, you should be able to handle further rate increases. That is…at least on paper. This is of course providing that your employment or income situation is the same or better than it was when you set up your current mortgage.   

As long as our economy continues to grow at its current pace, we’ll almost certainly see two more increases to prime rate next year. Both potentially in the first half of next year. A third increase could be possible by the end of 2019. The Bank of Canada continues to have its finger on the trigger and will be looking to increase rates as quickly as they are able. 

Will prime rate continue to increase beyond this? It’s possible that it may, however it is extremely unlikely that we’ll go another five years without seeing any decreases along the way. Prime rate will likely level off in 2020, and potentially even start to settle down after that.  It would be quite shocking for prime rate to continue increasing over the next several years without seeing any decreases.

 

How a 1.00% increase in mortgage rate would affect your payment

If mortgage rates were to increase by 1.00%, your payment would increase by ‘approximately’ $50 per month for every $100,000 owed.  So on a $500,000 mortgage, you could expect an increase in payment of approximately $250 per month.

 

What action should you take? 

In the 80’s, we saw mortgage rates close to 20%. This is not something that is going to happen again. If it did, we would have one heck of a financial catastrophe on our hands. Financial regulators will do almost anything to avoid us going down that road.

If you are currently in a variable rate mortgage of prime -0.80% (3.15%) or greater, then you’ll likely want to consider either locking in or switching to a lower rate with a different lender. There may very well be rates low enough to not only offset your penalty, but also come ahead saving thousands of dollars above it.

If you have a mortgage coming up for renewal in the next 120 days, it’s best to start looking around to see what your options will be for renewal. While the maximum rate hold is 90 days before your renewal date with most lenders, there are some cases where it may make sense to make a move early.

If you are considering refinancing to take equity out of your home, now would be a good time to do so.

If you remain concerned about rising rates, and if this is something that is worrying you, then you may want to consider locking in for a longer term. There are currently 7 year fixed rates as low as 3.44%, providing you have a down payment of 35% or greater, or 35% or greater equity in your home. Note that some exceptions apply here so it’s best to reach out to me to find out the lowest rate available to you.

If you are unsure of what to do, or even if you have any questions about your current mortgage, then reach out to me and I’d be happy to analyze your situation and further advise.