How do changing Interest rates affect you?

Everyone has been hearing about changes to the Bank Of Canada's interest rate lately, and it has been going up recently. To most people they gloss over when it comes to financial news but this is one thing that they should pay close attention to as it will hit you in the pocket book as hard as the rise in Gas prices is currently already doing.

Posted here is an article written by @BradTrojan, a mortgage agent, explaining some of the terms you are hearing tossed about. If you are looking for more info on all of this feel free to reach out to him directly!

Interest rate hikes: How it affects you or doesn’t affect you

The Bank of Canada has increased its policy interest rate on multiple occasions since the turn of the calendar year and if you’re wondering how this affects you as a homeowner, there are various factors that contribute to the ever-changing real estate landscape.

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Inflation and the policy interest rate are the two main contributors into why interest rate hikes have occurred rapidly in recent months; causing many Canadians to re-evaluate their decisions moving forward when it comes to buying or selling a property, conducting a refinance, or renewing their mortgage.

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Inflation is defined as the overall increase in the price of products, including goods and services. When inflation is too high, consumers and investors lose purchasing power, and this leads to the economy being impacted negatively. The Bank of Canada will then usually combat inflation by implementing a policy interest rate hike to attempt to bring the economy back to balanced levels. When inflation is low, it means there is more disposable income and the economy is doing well.

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The Bank of Canada controls the policy interest rate to regulate the country’s level of economic activity. The policy interest rate is the fixed interest rate that is arranged by financial institutions, including many big banks such as (Scotiabank, TD), monoline lenders including (MCAP Mortgage Corporation, First National) amongst others. The increase of rates throughout Canada is a way for the Bank of Canada to counter inflation. The housing market has already gone through a downturn in prices with interest rates on the rise, even in the hottest market segments across Canada.

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A policy interest rate increase affects most homeowners as their payments heighten on their loans for mortgages. This reduces the demand for goods and services until prices stabilize, thus homeowners must navigate their situations accordingly. ?

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First Time Home Buyers

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The first step that needs to be taken is to go over your budget and adjust it according to the rising rate terms currently present in the market. It is best to work with a mortgage broker to get an accurate pre-qualification done in order to get an accurate assessment of what you pre-approve for, otherwise known as your purchasing power when searching for a home.

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Variable Rate Mortgage Homeowners

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Monthly payments will increase while fixed rate mortgages will only change upon a mortgage renewal when the term ends. Variable rate mortgages have been an attractive option as of late due to their rate levels being lower than present day fixed terms available. It is advised to ride out your variable rate mortgage as they continue to be beneficial as long as you’re prepared for fluctuations in your payment plan.

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Due for a Mortgage Renewal in 4-6 months

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An upcoming mortgage renewal could be crucial into helping you secure a lower rate before the next rate increase without taking on a penalty. Most lenders can provide a 120-day rate hold so you can lock a rate down four months before renewal. The penalty fee will be a factor if you’re looking at acquiring a new mortgage term well before the final six months of your current mortgage package.

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Review Financial Plans

When a policy interest rate hike is occurring, it is important to evaluate everything and make informed decisions as you can save money over the long run to better position yourself for the future. As long as you continue to monitor your budget and evaluate your spending habits, it is highly attainable to make it through this challenging time.

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Brad Trojan

Mortgage Agent – The Mortgage Coach

(705) 794-5288

[email protected]