In this episode of Own Your Life, we plan to cover the current hot topics:
~ The Bank of Canada increase of 50 basis points, or 0.5% √
~ How this impacts variable mortgage holders √
~ Fix rates are now declining! √
~ And what to expect in 2023 √
👉 Learn more, call Jessi at 604 716 6474, email jessi@jessijohnson.ca or schedule a time to chat here: https://calendly.com/jessirealestate
So the Bank of Canada just increased the overnight lending rate, again. Let’s break how what this costs variable mortgage holders’ monthly.
First off, to be clear, this does not affect fixed mortgage rates. If you have a $500,000 mortgage with 25 years of amortization, your payment just went up about $150. If you have a $1,000,000 mortgage with 25 years of amortization, your payment just went up $300.
All in all, this isn’t terrible however, combined with all of the other increases, this isn’t sustainable with too many increases, too fast For concerned variable rate mortgage holders, what are you recommending they do? Should they lock in my variable mortgage rate?
At this point, I would just ride it out. We are likely already in a recession but won’t know until 6-months of negative GDP (gross domestic product) appears. The only way to get out of a recession is to lower rates. Anyone taking a 5 year fixed rate today will be kicking themselves in 12-18 months.
Most recessions only last 10-months so hoping this is their last raise. This sounds like it will be their last increase and then they will keep it at that rate until inflation drops. It appears that fix mortgage rates may have already passed their peak. I am seeing fixed mortgage rates are actually declining, finally! The bond yield at the time of this recording is 3.03. This is over a 1% decline from the peak. Lenders, unfortunately, are quick to increase rates but often slow to drop them. As of today, we are now able to access fixed 5-year term mortgages in the 4% range.
Say for example, a new buyer needs a mortgage. Today, I would suggest a 1-year fixed mortgage rate. The best 1-year fixed, as of today is 5.34%. Then I would renew at lower rates in 12 months So how does this week’s raise impact the stress test for variable mortgages? To pass the stress test, you will have to qualify for a 7.5% – 8% mortgage. This will further reduce the buying power. There is a good chance that this will, unfortunately, force some families to sell but there is usually a work around to that because you never want to be forced to sell. Refinancing and restructuring debt is very helpful to through tough times like this. The economy sucks right now, we need to be very careful with spending until things improve.
Call me for my details and learn how my mortgage team can help get you through this.
Watch the video for more details 🙂
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