We have recently had two Bank of Canada increases with prime now at 1.0% vs .50% so one half point since mid year.
However prime remains in the all time ‘historical low’ category when you consider rates over the last 40 years.
How much more might prime go up? Not much more say most experts who predict one more small rate increase this year and a target high in 2018 of 1.5% which would mean a full 1% rate increase in a year.
Note that recent rate increases have been the result of a stronger than expected economy (not inflation) which is clicking on all cylinders as is employment growth. Have you noticed hiring signs just about everywhere?
A full point increase in prime over one year is considered to be a relatively low jump in prime lending and will leave the benchmark rate within the historical low category.
Conclusion? The current upward movement in rates is modest and should not be looked at with alarm. We all knew that rates could not stay at ‘rock bottom’ forever and now they are adjusting towards a new normal.
So, should you ‘lock in’ your current rate or choose a fixed rate mortgage versus variable next time around? The banks always say YES no matter what.
We say an emphatic NO for two very simple reasons. First we have irrefutable evidence that our ‘variable’ rate clients have fared extremely well over the past 10 years by choosing variable, meaning these folks have paid down their mortgages much faster than fixed rate clients have. Secondly, if you have a bank (collateral) mortgage then the bank can increase the rate ‘at their discretion’ on any and all secured debt you have with them; that is regardless of what prime rate does.
Actually, there is a third (big) reason. If you have a fixed rate bank mortgage and you decide to move before the end of term, you will suffer a severe (mortgage break) penalty. And if the bank tells you they will blend your new rate and not to concern yourself about the penalty, you still are hit hard and do not even know what penalty you pay. Remember all banks want you in a fixed rate mortgage vs variable so they can charge you the maximum versus the minimum three months interest penalty, which is why we continue to advise our clients to consider variable over fixed.
We have written many, many times that ‘rate’ is important but that the ‘terms’ can be even more important and damaging to your financial health in the longer run. Note any such mortgage break penalty from our lenders are up to 75% less.
It is still an opportune time to buy or refinance, and in fact with expected further mortgage qualification tightening which will affect everyone, if you are thinking of doing anything soon, you should do it now.
Our services are free of charge, OAC, and we guarantee you an equal or better than bank rate and superior terms. In other words, a better solution for you. If you are currently with a bank, we assure you that getting a second quote is absolutely in your best interest.