…well not quite.
I know most of you have already heard that the Bank of Canada increased it’s Prime rate this morning for the first time in 7 years! The Bank of Canada Prime rate now sits at 0.75%, a quarter point higher than the 0.50% it was at yesterday. Most banks and lenders will be increasing their Prime rate accordingly. Currently bank Prime is at 2.70%, and we expect most to bump their rate to 2.95%.
Is now the time to panic?!
The quarter point increase to Prime will increase payments by a mere ~$13 / month for every $100,000 in mortgage amount, based on a 25 year amortization.
Here are a few personal opinions on the matter:
- If you have followed our recommendations to this point and have already increased your regularly scheduled payment, congratulations! You, especially, should not be converting or locking in your mortgage. For those of you who have not increased your payment, now might be the time to consider it. If you were to convert to a fixed rate today, a 5-year fixed rate would range from 2.79% to 3.09%, depending on what your bank or lender is offering. Most of my clients on variable rates have interest rates in the low 2% range. Today’s increase in Prime will still keep your rate a far cry from where fixed rates are at. Rather than converting now, why not increase your payment to “mimic” the fixed rates? This will give you the same monthly payment, but you will still be paying less interest, while making a greater impact on your principal balance at the same time. Those of you who are subscribers of our Inflation Hedge Strategy will continue to follow the fixed rate market, making small, manageable increases to their payment over a 5 year period. I guarantee the effect this has on your balance at maturity will blow you away 🙂
- In times of uncertainty we tend to look to historical data and evidence. For the past 50 years (since they began tracking this data) the variable rate has been the right choice in the long run – Every. Single. Time. We will definitely see highs and lows following this strategy, but I am a firm believer that the long run will pay off for those who are persistent. Especially if you are following the above strategies!
- The Bank of Canada has increased Prime today mainly due to better-than-anticipated growth in the economy. In a nutshell, Prime is typically increased when the economy is doing good; and decreased when the economy is struggling. If you are a subscriber to the theory that our global economy is in for another “reset” in the near future (consider that the stock market is currently performing leaps and bounds ahead of where it was at pre-2008) then you can appreciate the fact that times of uncertainty continue to lie ahead. This means that in the medium-term, there will be as good a chance for Prime to decrease again, as there will be for it to increase.
- Many of you have asked in the past, so I am sharing with all of you that I will NOT be converting or locking in my own personal variable rate mortgage. Life is variable; your mortgage should be too 😉
- For those of you who want to completely take this off your mind and explore your conversion options, that is totally fine too. For a quote on your conversion options, please contact the servicing department of your lender or bank. Their contact info can easily be found on your customer portal or your lender’s website. Be sure to ask for ALL of the terms available to you on conversion, not just the 5 year term. Once you have your options, remember that many of you are eligible for our Ultimate Variable Rate Mortgage Guarantee, where we pay your penalty for you if your lender is not offering you their best conversion rates. So before you make that final decision, be sure to contact us to ensure you are getting the best options available to you.
As always, we remain committed to our promise to you in keeping you informed and updated on these types of changes. Please don’t hesitate to reach out if you would like to discuss your personal circumstances or bounce ideas off of us.
We continue to strongly believe in active mortgage management (bullet point 1) as we have seen the positive results that this has had on our clients. Your mortgage is the largest debt you will ever take on; but, if managed properly, it can become your greatest asset!
Thanks for reading.