The news says rates will go up, does that mean I should lock in?
The bank of Canada (BOC) has 8 pre-scheduled meetings each year where they decide if they want to impact the overnight lending rate (which impacts the BOC prime rate). In 2022 the meetings will occur on these dates: https://www.bankofcanada.ca/2021/07/bank-canada-publishes-its-2022-schedule-policy-interest-rate-announcements-release-monetary-policy-report-other-major-publications/
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On March 2 they increased the interest rate by 0.25% for the first time since 2018. This change is not at all something to panic over but many clients were reaching out asking what they should do and if they should lock in. For one client who was in a variable rate mortgage here was my response to them…..
if it were me I would 100% NOT BE LOCKING IN AT ALL…. But it is your mortgage, lol.
Here is why:
The variable is much cheaper to break so whenever we may need to break the mortgage then variable will save you thousands of dollars in penalties to break it. Statistically Canadians are 65% likely to break their mortgage early and even more so if they have young children, it is their first home, they have co-signers or they are considering moving within the next 5 years.
Fixed rates are very high right now. If you lock into a fixe rate mortgage right now you will be signing up to have a mortgage payment that is about $734.59 higher than what you have right now depending on what your lenders lock-in rate is currently (it is what they offer new clients for the same mortgage… NOT your current variable rate that you lock in at). If there are 0.25% increases in the Bank of Canada rate it will only increase your payment by about $64.52/month
So essentially it would take 10 increases of 0.25% by the bank of Canada for a lock in to match the rate…. But you have been saving sooooo much money in interest to you bank this whole time as well. It really isn’t going to save you money or be in your best interest to lock in.
So yes, interest rates are going to continue to increase a bit. But unless they go up 14 or 15 times (which is beyond unlikely statistically) it is not going to save you more money to be in a fixed rate mortgage than it will to keep your variable. This could change if something happens and fixed rates drop down to where they were 1-2 years ago…. If that happens and there ever is a good time to lock-in you will hear from us because we monitor this like crazy and will reach out to you.
In the meantime, interest rates will increase. Please accept that. The bank of Canada meets for 8 pre-scheduled meetings per year and sometimes they will increase the rate by 0.25% or even 0.5% HOWEVER, when that happens I want to remind you that you are saving about $734.59 /month by sticking with your variable rate mortgage and if they increase the rate by 0.25% then you are only saving $670.07 or if they increase by 0.5% then you are only saving $605.55/month…. Which is still a significant saving.
