The mortgage world is not too much much fun lately.
This week, I tried to unsubscribe from all of the rate increase notification bulletins. Turns out that doesn’t stop rates from moving.
As you can imagine, I have a fair number of conversations every day around the impact of the changing interest rates, what is potentially coming with rates and how we can best manage each client’s situation.
As I write this column, many lenders are offering clients five-year fixed rates of 5% or more.
A year ago we were able to place five-year fixed rates at about 1.65%. That’s quite a difference.
Clients who are out house-hunting, and clients whose mortgages are coming up for renewal, are very concerned about affordability.
If you bought a home since mortgage legislation changed in 2016, you would have had to qualify under the stress test. That means (depending on when you actually bought) you were qualified to carry a mortgage based on a rate of anywhere from 4.64 per cent to 5.25 per cent. In theory then, you should be able to carry a higher payment if you have to renew at 5%.
People’s situations change over a five-year term. Ideally your wage has increased and your debts have not. The reality, in many cases, is couples move into a home, then start a family, or buy a new vehicle, or, as Covid showed us, employment changes.
I don’t have a crystal ball that is particularly accurate. There are many economists and experts sharing their thoughts on what is to come with respect to interest rates and the state of our economy.
The economist I follow most closely said earlier this week he feels rates will be bumpy for the next few months then start to trend downwards.
If you have chosen a variable rate mortgage and are now panicking, it’s important to do the math. It is definitely a bit unsettling to hear all of the doom and gloom, but it is key to focus on the reasons as to why you chose your variable rate in the beginning.
Many clients don’t realize they do not have to chose a five-year fixed term. It is the standard offer from most banks and what many clients are most comfortable with. However, you can choose a shorter term if you want the stability of a fixed rate but don’t want to be locked in for too long.
The bottom line is there are ways to navigate through this interest rate environment that may help to put your mind at ease.
Freeing up monthly cash flow by refinancing your home is one option. Even with mortgage rates being a little higher, improving your cash flow by paying off credit cards that are charging higher interest rates may help you sleep better.
Either way, often a call to your mortgage person is the best way to start. See what his or her thoughts are for your particular situation.
A quick call may be all you need to put your mind at ease.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.