Rumour has it the worst is yet to come. On October 26th, Bank of Canada Governor Tiff Macklem will very likely increase rates by another 0.50%. Not only will this push the bank prime rate up to 5.95% – it could lead to the average 5-year fixed rate mortgage well above 6.00%. What a mess. As I mentioned in my previous article, the BoC made a critical error and the Canadian people are continuing to pay for it.
Luckily, this won’t last forever. Economists and other experts (myself included) predict that there will only be higher rates for 12-24 months. After an inevitable economic downturn, the BoC will start slashing rates to kickstart the economy again.
So what should you do in the meantime? As always, it all depends on your personal situation. But broad strokes, here’s how I think different types of homeowners and borrowers should navigate the current economy.
If your mortgage is up for renewal in the next 4 months:
Get a rate hold. This is a no-brainer whether you’re dealing with variable or fixed rate mortgages in a rising rate environment. Rate holds are available for up to 120 days and can save borrowers as much as $25,000. If you have a short remaining amortization, consider extending it. This could soften the blow of a rate increase making it well worth the $1,200 you’d have to give up in legal fees. However you proceed, I would recommend only renewing for a 2-year term.
If your mortgage is up for renewal in the next 12-24 months:
Chances are your current lender has already reached out trying to scare you into a 5-year fixed rate mortgage. Be careful. Banks make the most money on 5-year fixed rate mortgages, so they capitalize on people’s insecurities to lock them in. Don’t fall for it. Time and time again, variable rates and short term fixed rates have come out on top.
If you want to refinance your mortgage:
It’s arguably never been harder to make ends meet. In economies like the one we’re in, refinancing is a solution that can help you free up cash and stay on top of your bills. Variable rate or a short term fixed rate is your best bet – but I would highly advise against a long term fixed rate.
If you want to buy a home now or soon:
Yes, home prices have fallen by 15-20% from their all time high in March 2022. But it’s important to remember how we got to March 2022. Home prices increased by just as much just as quickly. What we’re witnessing right now is a correction. It’s still a good time to buy, so don’t be afraid to find the right home and get into the right mortgage.
Many of you reading this don’t fit into any of these categories. If that’s the case, please reach out for help. There are so many ways to ride out or even thrive in this market. Just know that this won’t last forever because this can’t last forever.
The way we’re going just isn’t sustainable. As much as the federal government is supposed to stay out of it, they can’t just stand idly by while millions of Canadian suffer through financial hardship. Yes, they’ve introduced and increased rebates. But the rebates won’t cut it, and quite frankly, they’re somewhat insulting. They might make great headlines, but they do very little to help middle class Canadians in a meaningful way.
Relief will come at some point – but if you need help getting there, feel free to contact me for strategies that are tailor made to your circumstances.
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