Ok, we get that it’s hard to love higher rates but hear us out…
Most of our clients with variable rate mortgages have seen rates rise before. Many of you had higher rates before you have enjoyed historic lows over nearly the last two years. We’re taking this opportunity to remind you that; the variable rate product takes a long view of things, rolling with the normal ups and downs of rates while keeping you in a flexible product, and enjoying a lower average rate over time. We still support the variable product for most of our clients despite the certainty of rate increases, read on for a couple caveats to this.
Below we have taken some time to take a realistic look at what the coming increases mean for our clients.
Higher rates are coming, but what does this mean for your mortgage payment?
General assumptions and notes:
- 25 year amortization being used for this calculation
- Divide monthly into two for a bi weekly payment increase amount
- Rounded to nearest dollar
- For illustrative purposes only, not to be taken exactly as current loan amortization will dictate payment amount increase.
Per 100,000 current balance on the mortgage this means the following:
- 0.25% increase = $12 increase/month
- 0.50% increase = $24 increase/month
- 0.75% increase = $36 increase/month
- 1.00% increase = $48 increase/month
- 1.25% increase = $60 increase/month
- 1.50% increase = $72 increase/month*
*This is where we were before COVID-19 pandemic emergency drop in rates March 2020.
Example
I currently have a $450,000 mortgage. If we see a 1.50% increase in the next 18 months, how much can I expect my payment to increase?
- $450,000 divide into $100,000 = $4.5
- $4.5 x $72 /month = $324 /month
- Or bi weekly = $324 / 2 = $162 bi weekly
What are we basing our advice on? Spoiler: It’s not the news.
Below, we’ve linked two great reads from Avery Shenfeld, Chief Economist at CIBC. He spells out what CIBC Capital Markets are projecting over the next two plus years.
CIBC: The Week Ahead January 24 – 28
Worth a conversation with us?
For those clients who currently have a variable rate mortgage at 1.70% or higher AND/OR have less than 3yrs remaining on their variable rate contract, it may be worth the conversation of looking at a shorter term (2-4yr) lock in or new variable rate discount and term, please contact us to discuss.
