Inflation, Interest Rates & Locking In
We are currently in pretty unprecedented economic times. Following a long period of record low interest rates, inflation has ramped up and is pushing rates along with it. With this week's Canadian inflation numbers showing 7.7%, the highest since 1983, and up from 6.8% in April, another rate increase in the near future is almost certain. The Bank of Canada could even follow the US and raise rates by 0.75%. Almost everyone is feeling some sense of uncertainty over what's to come and what we should do, so I wanted to reach out with some information to help keep things in perspective.
First, what you should not do is panic! Almost every headline out there is scary by design so don't assume that just because something is in big bold print that it is a certainty for you. Much of what is out there is very general in scope and worst case; everyone's individual situation is different and unique including yours. If you have specific questions or concerns, reach out, and we can talk about them.
I've always found that the best way to make anything mortgage related less daunting is by keeping things simple and with math. All the panic out there is being caused by numbers changing, so let's examine what the numbers mean for most borrowers.
Right now the big question on borrowers minds is 'Should I lock my variable rate into a fixed rate?' For some, it make sense to lock in, for others riding out these rate increases would be the better move.
See the chart below for a comparison of the effects of locking in or keeping your variable on your monthly payment.
Looking at the numbers above it would currently take between 8-10 0.25% Prime Rate increases to bring your payment up to where it would be at a fixed rate. Or 4-5 more 0.50% increases to have the same effect!
There are also pros and cons to locking in that you'll want to consider.
Hopefully this all adds a bit more perspective to your options and helps alleviate some stress of deciding what the right move is. Of course the right decision is different for everyone, and we are always here to chat through your specific situation with you. Don't hesitate to reach out, you can book a time to chat with the button below.
Enjoy the sun in the meantime!
