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Dean Garrett Mortgage Professional

Dean Garrett

Mortgage Professional


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Rates are in The Headlines Again,

6/1/2022

Let me break this down and shed a better light on the situation.

The Bank of Canada changes to their overnight lending rate do not impact borrowers who have a Fixed Rate Mortgage. Only borrowers with a variable rate mortgage, Home Equity Line of Credit (HELOC), and unsecured credit lines will be affected.

In an effort to curb a 30-year inflation high, the Bank of Canada did it again, raising the overnight lending rate by 0.50%. That means prime and variable-rate mortgages will lift by 0.50%. They also indicated that they will continue to increase their rate further as necessary to reach their goals against inflation.

With prime now moving from 3.2% to 3.7% with most lenders, expect approximate payment increases to look like this for variable-rate mortgages IF you're not on a static payment:

$400,000 Mortgage

️$100/ month

$600,000 Mortgage

️ $125 / month

$800,000 Mortgage

️$200 / month

$1,000,000 Mortgage

️$250 / month

DO NOT PANIC!

No really, don't! Variable rates are rising, however, they are still below pre-pandemic times. The variable rate option has proven to be a better choice for most mortgage holders for over thirty years, and your loan will likely be with you for many years to come. The best way to counter any stress or sleepless nights is to review your personal situation and make a plan you are comfortable with. I am happy to help you with that process. The best way to save interest on your loan is to pay down the principal as fast as comfortably possible.

If you are on a static payment, note that more of each payment goes toward the interest. This will extend your amortization out, as it will now take longer to pay off the loan. I recommend increasing your monthly payments accordingly or, plan to make a few equivalent lump sum payments throughout the year to keep paying down your principal balance. This will help keep your amortization schedule on track.

Depending on your mortgage balance (see above), this doesn't need to break the bank.  Say for a $500,000 mortgage, plan on making an annual lump sum payment of $1500-$2000 ... maybe when you receive your CRA tax refund, or at the time of your next bonus, or next larger commission cheque. Or plan for $500-$1000 per quarter.

HELOCs and unsecured lines of credit rates typically float with prime as well, so you will likely see an increase in interest and payments for these credit facilities as well.

If I can assist you with any action, or questions you may have please reach out.

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