A word of warning about variable-rate mortgages, since you probably don’t want to regret your decision. For instance, you wouldn’t want to invest in a property with an ocean view that’s right in the middle of a know hurricane zone, right? We want you to be prepared for the high-variable mortgage rates that may come in the very near future.
Although we aren’t too sure when the interest-rate market in Canada will be affected, we do know that you can expect to see an increase of at least 1 or 2 points on prime rates, whenever the storm hits. In order to help you prepare for this unknow hike we’ve created a plan just for you.
The Bad Windy Rate Storm Is Approaching
Over the last 35 years we’ve been quite lucky in Canada. Inflation on mortgage rates, and the expectations they are tied to, have declined by nearly 2,000 basis point over the last three-and-a-half decades. Even though we’ve taken advantage of these drop in rates, eventually core inflation will soar. It’s highly likely that we will even see it surpass the Bank of Canada and their 3 percent upper tolerance and mortgage rates lift off.
This bad unpredictable rate storm could be triggered by almost anything including:
- Annual overspending by the Provincial Government
- Oil price hikes
- Over-stimulating growth with too much cheap money
Unfortunately the bond market can’t warn you if you are in danger of inflation. However, many people don’t realize this is actually a good thing. Warnings could set off chain reactions such as mass bond dumping and quick selling. In turn this could encourage rates to go even higher than expected and happen even faster than we expected.
There is Good News Though
Over the last 25 years, the Bank of Canada keeps a close eye on possibilities of inflation, with inflation targeting. If they see it or expect it to approach, they will boost rates overnight, braking the economy. Once this policy kicks in, inflation usually goes back where it came from.
We’re glad to say that during this time, core inflation has never surpassed the Bank’s upper limit for any duration exceeding six months.
How To Be Prepared
In today’s economy, you can get a variable-rate mortgage for 1.95 to 2.2 percent. When the inflation comes, they’ll go up to about 3 to 4 percent, possibly more. If this happens here’s how you can be prepared.
Keep Your Cool
You should remain calm, don’t panic. Unneeded panic can cause you to lock in late, and this is definitely something you should try to avoid. You have to keep in mind that variable-rate inflation is only temporary. If we were talking about long-term fixed rates, then there would be more room for concern.
Beat The Bond Market
Considering converting to your variable rate to a fixed rate? If you’re considering a conversion, you’ll have to do the switch and lock in before the bond market increases your bond yields. Yields are what drives fixed mortgage rates.
Consider Variable and Short-Term Fixed Rates
If rates have already increased and you’re up for renewal, this isn’t the ideal time to be thinking about long-term fixed rates. However, it is the perfect time to consider variable and short-term fixed rates.
It’s wise to keep a floating your rate, especially if you’re a strong borrower. If you really feel that you need to lock in your variable rate, make sure you do it early enough. Otherwise, simply start with a fixed rate, then you have absolutely nothing to worry about.
Don’t be caught off guard when inflation hits the mortgage industry. Consult with your local mortgage expert at AKAL Mortgages, to get advice on your options.
When we say Yes, we stand behind our promise!