This is the million-dollar question.
With so much unknown in our economy and real estate markets, there is one sure thing - interest rates are on the move upwards. BUT, this is only fixed rates.
Variable rates remain at all-time lows. Fixed rates have increased by approximately 30bps (.30%) over the last couple of weeks.
Why is it that only fixed rates are increasing?
Fixed rates are based on the bond yield market. As bond yields increase, eventually, so do the fixed rates. There has been pressure building in the bond yield market for awhile now and it was only a matter of time. Whereas, variable rates are dictated by the Bank of Canada (BOC) and based on many things including the health of our economy and consumer debt load coupled with what upside/downside there would be if they change the prime lending rate - currently set at 2.45%.
Variable rates are holding firm and we’ve been told publicly from the BOC that they won’t look at the increase until 2023.
What does that mean for variable rates?
Variable-rate discounts remain low and so does the prime lending rate of 2.45%. When you factor in the low discounts with the low prime lending rate, variable rates are very, very attractive. If we believe the BOC, the prime lending rate of 2.45% will remain the same until 2023 but the discount from lenders may change. If you have a current variable rate mortgage you are good, your discount is locked in.
Currently, the BOC prime lending rate is 2.45%. If you have a variable rate mortgage, you either have a discount or premium added to this rate. Ie. Prime (2.45%) - 1% (discount rate) = 1.45%. If you have a premium added to that prime rate then we really need to talk because there is an opportunity to save some money.
As the BOC moves the prime lending rate of 2.45%, your discount stays locked in for the term (typically 5 years). So if the prime lending rate moves to 2.70% and your variable discount is 1%, your new interest rate is 1.70%.
If you want to secure a fixed rate before they increase even more, please reach out to lock in a rate hold.
If you want to see if we can save you money on your current variable rate mortgage, please let me know and I’ll run some numbers.
Either way, we as Canadians are in a great spot from a mortgage rate perspective. Money is still cheap and it will be for the foreseeable future.