To say it’s been a crazy time is an understatement. Covid, wars, natural disasters, a fast past housing market and other unforeseen factors, have all led to worldwide record inflation. Bank of Canada and banks around the world have had no choice but to implement aggressive rate increases. Lowest rates in history was something we all got used to. It made payments more affordable, higher buying power and allowed for a bit more freedom in spending. But all good things come to an end, at least for a while. We have seen these cycles before, but we are certainly feeling the heat right now if you are in a variable rate or just getting into the market.
Even though there is a stress test in place, that gave consumers wiggle room if rates rose, many got used to having a certain lifestyle and cash-flow. Those that had a fixed rate mortgage, under 2% have not felt the pain, but soon will when mortgages come up for renewal.
Since Covid restrictions have lifted, we are seeing packed restaurants, concerts, sporting events and travel increase. I see that all coming to a bit of a slow down again as we are finding there isn’t as much disposable income, if any right now. For example, if you bought at the beginning of 2021 when Prime was at 2.45% and had a rate of Prime – 0.35%, on a $600K mortgage, payments were $2245, fast forward to now, payments are at $3238 – that’s a difference of $993!
Do you regret going into a variable product? Maybe? Perhaps focus on the fact that you paid down a lot of your interest, more than had you been in a fixed rate. Or perhaps focus on that you were able to get your home because you qualified for the purchase based on the variable product. Finally, you probably made some good gains on your purchase due to rising home valuations. I’m a glass half-full kind of gal, and yes – I myself, am still in the variable product. One rougher year out of four awesome ones, doesn’t make it a disaster choice. Plus, it gives a whole lot of flexibility should you decide to sell in terms of lower penalties. It’s been a winner for me for over 26 years, so I like that history!
The experts are saying once inflation curbs, we will see rates drop – both fixed and variable. What goes up quickly, goes down quickly. So before considering to lock into a fixed rate, consider that it can be much more painful in the long run, and always be sure to get an opinion and review your options with your mortgage expert.
We shall see what the Bank of Canada’s next move is – and what happens in the world to determine their decisions. If only we had a crystal ball.
Your mortgage expert,
Daniela Serena
604.889.6750