It’s the number one question those in the mortgage industry are being asked right now, by borrowers that are currently in a variable rate mortgage. People that signed up for variable rate mortgages over the past few years were hopefully informed that they were in for a bumpy ride and to strap on their seat belt.
“Locking In Is Not a Good Idea”
Not too long ago (2021), interest rates were at the lowest they’ve ever been in the history of the Canadian mortgage industry and the Bank of Canada’s overnight rate was .25%. Rates really had no where to go, but up. The million dollar question was “how much?”
Here we are in June 2022 and we have a looming BoC rate increase expected on July 13th, some saying it could be .75%. Are there more coming? Probably? Notice all the question marks?
One thing I do know (I think)…locking in is not a good idea. There’s a misconception out there that “locking in” means you get to lock in at whatever your current variable rate is at. That is not true. Your locked in rate is whatever your lender’s going fixed rate is for the term closest to what you have left in yours. For example, if you have 3yrs left in your term, then you would get your lender’s 3yr fixed rate. I can assure you, doing that would be a sizeable jump in your mortgage payment. Essentially, what you are doing when you lock in, is guarantee a rate increase for an extended period of time and you pay the bank more money.
You Have Options
Hear me out. If you are willing to lock in at an interest rate likely around 2% higher than what you are paying now, then consider sticking with your variable rate and increasing your payment by 15 or 20% (whatever maximum your lender allows, penalty-free). This does a few things… 1) Every dollar amount over and above your existing payment goes directly towards paying down your principal balance and 2) You pay yourself, instead of the bank. History tells us that you are in a better position with a variable rate mortgage, it’s just a bumpy ride at times and you should prepare for that when budgeting. Fixed rates are comfortable, but you pay for that peace of mind.
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