Trusted Regina's Skott Enns TMG The Mortgage Group can be found in the Mortgage category.
We sat down and asked Skott Enns of TMG The Mortgage Group some questions we thought you'd like the answers to!
"As many of you have now heard, the Bank of Canada increased its lending rate to 0.75%. That is an increase of 0.25%, from their previous rate of 0.50%."
QUESTION #1: Who will be affected by this?
"When the BoC increases their rate, this will typically translate into an increase in the Prime lending rate, which is how banks calculate their variable mortgage rate. Hence, if you have a variable rate mortgage (or there is a line of credit component attached to your mortgage), you can expect your mortgage rate (and likely your payment) to increase by 0.25% in the very near future."
QUESTION #2: What does this actually mean?
"Of course no one likes to hear that their interest rate is increasing, but before panicking, it is important to look at what this actually means in dollars and cents. With this 0.25% increase, your mortgage payment will increase by $13/month for every $100,000 you owe."
"So if you have a $300,000 mortgage, this will increase your mortgage payment by $39-ish per month. Clearly you would rather keep that money in your own pocket, but this is not a scenario where the sky is falling."
QUESTION #3: What to do?
a) "We can lock in your mortgage rate by converting it to a fixed term. When you originally received your mortgage financing you (in most cases) were committing to that particular lender for a 5 year period. If you are now 2 years into that variable rate and wanted to lock into a fixed term, you would be locking into a term of at least 3 years. Make sense? Keep in mind, however, that in many cases, the fixed rate that you would be locking into is still going to be higher than your new increased variable rate."
b) "We can do nothing, and stay the course with a variable rate. Although one can never guarantee what will happen with mortgage rates, history shows that those borrowers with variable rates who stay the course as opposed to locking in mid term still save more money."
SKOTT'S TWO CENTS:
"As a blanket statement, I am encouraging the clients who are calling me to stick with their variable rates. As mentioned, in most cases your new variable rate will still be lower than the fixed rate you would be locking into. If you consider this, in addition to the ultra-low penalty that comes with breaking a variable rate mortgage (should it ever happen), I still believe a variable term is a right way to go."
"That being said, every situation is unique. If you have any questions at all about your mortgage please do not hesitate to contact me at 306.201.6500."
I am happy to answer any questions/concerns you may have.