As predicted, the Bank of Canada raised their benchmark rate a few days ago. No surprises here. And yet, the media will make you feel like this was out of left field. Even worse, they’ll spew fear mongering dribble that the train is off then rail. That every single BoC meeting for the rest of the year will result in a rate pump. That we’re heading for a market crash of epic proportions. So is it time to worry yet?
I’m here to tell you this: turn off the television and take a deep breath. There’s nothing to fear.
These rate hikes are entirely normal. What wasn’t normal was how low they got in the first place. What we’re seeing is a minor correction. Not in the market itself; but in the rates that govern it. Even with these last two increases and the couple that are expected to follow, we’re still experiencing historically low rates – rates that anyone in the market for a mortgage should be taking advantage of.
Otherwise, it’s money left on the table. 5-year fixed rate mortgages might look more attractive on the surface. But if you calculate the total cost of your loan, you’ll come to realize that a variable rate mortgage can save you money in the long term. Yes, even if they continue to raise the rate a couple more times.
You might ask – how can I be confident that the benchmark rate will only be raised a few more times? The answer is this: any more would be too much too soon. The economy needs to be able to absorb these changes, and too many of them will make that impossible. The Bank of Canada knows that. Their job isn’t just to raise and lower rates on a whim. They raise and lower to ensure the health and stability of the Canadian economy. That’s why historically, any time rates have gone up three times, it’s always been followed by rate cuts.
The Bottom Line
Don’t let a single rate change or a scary headline dictate a decision that could impact your financial future. It’s perfectly understandable to feel anxious; these are anxiety inducing times. My advice is always to take a breath and take a long look at the numbers. Better yet, contact a trusted mortgage professional to walk you through your options. You’ll be surprised at how much more thoughtful the guidance from a professional is than the “guidance” from a talking head on your TV.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; email@example.com