There have been predictions of interest rate hikes for a number of years, but it appears that it’s actually going to really begin happening. RBC has just announced that it will raise its fixed term interest rates by 20 basis points next week, and it is expected that the Bank of Canada will begin a steady increase in interest rates over the next year, with some financial analysts anticipating a 1 percent increase by the summer of 2018.
Canada has benefited from incredibly low interest rates, historically speaking, since 2008. With the cost of real estate rising, the lower interest rates have helped our clients get into the market sooner and achieve their financial goals faster. The good news about an interest rate hike is that it means that Canada is experiencing a stable enough economy to raise the rates, but the bad news is that it will affect many people’s personal financing situation.
But with interest rate increases on the horizon, real estate lending is going to require a different approach than it has for the last nine years. While it may make things harder for people to get into the market, working with a qualified professional to help you anticipate the rise in interest rates can make it a much smoother transition.
One question that a number of people will be asking during this time is, “should I change my variable rate mortgage to a fixed rate mortgage?” Everyone’s situation is different, and there’s not a one-size-fits-all approach to determining whether or not to stay in a variable rate mortgage. The fact is that lenders are more likely to offer a great rate at the beginning of a term, but aren’t always willing to provide a good deal to those switching to a fixed rate mortgage in the middle of the term. Depending on the details of your mortgage, which are best to go over with a qualified mortgage broker, either scenario could be more or less beneficial, but it’s certainly worth taking a look and doing the math to see if the time to make the switch to a fixed rate mortgage is now.
More critically, however, the mortgage lending laws are continuing to tighten, which means you need a great mortgage specialist to help you receive the best rate and help you achieve your financial goals. Strict debt-ratio “stress tests” already apply for default insured mortgages, as well as many variable-rate and short-term mortgages but, thanks to Canada’s banking regulator (OSFI), which is looking at adding more rules in place in order to help Canadians protect themselves with the expected rate increases, we may be seeing regulations that require people to be able to afford an interest rate that is beyond 200-basis-points MORE than the actual, current rate.
If you’re interested in learning how to use the interest rate hike to your best advantage and protect your financial situation in the coming years, contact us directly. We’re always more than happy to provide a second opinion on your current mortgage and thoroughly and honestly discuss all your options.
Get in touch with us today to to learn more.
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Your London, Ontario Mortgage Brokers