With today’s tumultuous financial environment, the Bank of Canada has been making frequent rate changes and announcements in an effort to steer the economy towards stability and prosperity. No matter how well intentioned these changes are, they can cause a lot of confusion and concern for homeowners who are worried about how it might affect their mortgages and financial planning. As always, the key to reducing fear and acting proactively is to educate yourself and make a plan. This article addresses the impact of Bank of Canada announcements on your mortgage rate, so that you can worry less about your financial situation, and focus more on enjoying your home.
Fixed Rate Mortgages
If you are on a fixed rate mortgage, Bank of Canada Announcements won’t immediately affect you. The amount of your payment will remain the same, until it comes time for a renewal. The length of a typical mortgage in Canada is five years, so depending on the size of your mortgage and other factors, you will likely have to renew your mortgage several times. However, if the end of your current mortgage term is still years in the future, you will have time to plan and adjust your finances accordingly. Interest rates will likely change in either direction before renegotiating is even in the picture.
Variable Rate Mortgages
Variable Rates may have some fluctuations, however, it has historically been a more advantageous choice for borrowers in terms of interest costs. If you qualify for a variable-rate mortgage, you have a unique opportunity to capitalize on lower interest rates. You can choose to set a fixed payment so that, if the interest rate decreases, you will be paying more on your principal loan each month. Or, if you have flexible payments, you may see your monthly payments drop in accordance with decreases in the Prime Rate. If this alarms you, remember that the stress test you are required to undergo prior to mortgage approval leaves room for such adjustments. This means your lender is confident that a rate increase won’t have an excessively deleterious effect on your finances.
What can you do?
You can reduce anxiety by anticipating the announcements. The Bank of Canada makes rate change announcements 8 times per year. The announcement schedule for the remainder of 2022 is:
- Wednesday, June 1
- Wednesday, July 13
- Wednesday, September 7
- Wednesday, October 26
- Wednesday, December 7
If you are on a variable rate mortgage, you can be proactive by researching the financial environment and potential rate hikes or drops prior to the announcement, so that you can take action as soon as possible to adjust. We suggest using a mortgage rate calculator to determine what your new payments might be, and talking to a mortgage broker to ensure that you are fully prepared for upcoming changes. If you are excessively worried about the fluctuations in your mortgage rate, you might want to consider switching to a fixed mortgage where the effects of rate changes won’t be so immediate.
A mortgage broker can also help those on a fixed rate mortgage plan ahead so that they are well positioned to save money when it comes time to renew your mortgage.
As always, i’m here to help you deal with uncertainty and take the fear out of having a mortgage so you can maximize enjoyment of your property.