Thursday, December 1 2022

As expected, the Bank of Canada raised its overnight rate by 0.25% last Wednesday.

The overnight rate determines the rate that banks use to lend money to each other and any change in this rate is passed on to consumers by changing the rates of some of the banks’ lending products.

Adjustable rate mortgages, home equity lines of credit (HELOCs), unsecured lines of credit, and student loans all have interest rates based on the lender’s prime rate.

When this happens, it usually means your rate will also go up, but not always by the same amount. It can also mean that not all lenders will adjust their prime rate the same way – even now one major bank’s prime rate is 0.15% higher than everyone else’s on a mortgage. variable rate.

By the time you read this, many lenders will have already announced an increase in their prime rate, so keep an eye out for future prime rate updates from your lenders and when rate changes will affect your rate. mortgage.

The sky does not fall!

With the current discounts on variable rates, even after the roughly three planned increases of 0.25% this year, variable rates will still be lower than fixed rates. It would take about six 0.25% increases to match the current fixed rates.

The highest prime rate in the past 12 years was 3.95%, only 1.50% higher than the current rate of 2.45%.

So the best advice I can give you if you currently have an adjustable rate mortgage is:

Do not panic. Get independent advice from your mortgage broker (not your lender) on what this increase means for you and your personal situation. Lenders and the media can create a panic frenzy that might encourage you to think about locking yourself in now in fear of rates rising even further. It could mean more profit for the lender, a longer commitment on your part, and a tough break from that mortgage later.

Make a plan. You need to do an analysis of the financial benefits based on your short and long term plans. If you plan to move in the next few years, a variable rate might still be a better option with the lowest penalty. But, if you’re in your forever home and focused on paying off your mortgage at a specific time, such as retirement or sooner, a fixed-term mortgage may be more appropriate.

Everyone’s situation is different, so having a personalized mortgage that meets your needs, not the lender’s, is always the way to go.

Do the math. A lender might call you to force you to lock in your amazing variable rate, so don’t base your decision on fear. Go over the numbers, look at the facts, then decide what’s right for you.

Banks love fixed rate mortgages and want you to lock in your rate now. The economists you often see quoted in the news have been predicting a rate increase of 1.50% or more for over 10 years and they were wrong. Historically, holders of variable rate mortgages have always “won” the rate game.

It is important to note that the prime rate, and therefore your variable rate mortgage rates and your fixed term mortgage rates, are affected by two different sets of economic factors. Therefore, increases in fixed rates do not mean the same increase in prime rates and vice versa.

Please contact us if you would like a free independent consultation for [email protected] or call 1-888-561-2679. You can also book a time to chat here on my calendar at


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