As your mortgage broker, we feel part of our job is to help you stay informed about what’s happening in the national economy that may soon impact mortgage rates. Please read on to help you decide if now is a good time for you to lock your variable rate into a fixed rate.

What’s happening with interest rates?

As we (hopefully) near the end of the COVID-19 Pandemic, the federal and provincial governments are ending or reducing the economic stimulus programs they created in response to the pandemic. As well, global supply chain issues resulting from the pandemic are causing a short-term restriction on goods making it to store shelves (causing prices to increase) and labour shortages are causing competition amongst employers to hire new people (causing wages to increase).  Each of these factors are causing inflationary pressures, pushing up bond yields and therefore fixed mortgage rates, and it looks like these inflationary pressures will continue through this year and into 2022.  We therefore expect that fixed mortgage rates will continue to slowly move up over the next 12 months.

So far, the Bank of Canada (BoC) has indicated they are happy to let inflation run higher than usual, since they feel the economy has some ‘slack’ to be absorbed before we are back at full capacity (pre-pandemic levels of employment and consumer spending, etc).  They also feel that the supply chain problems are temporary and will resolve next year, and as supply increases prices should come back down.  However, just today the BoC indicated that these inflationary pressures seem stronger than they had previously expected and that they may begin increasing Prime as early as the spring or summer of next year to start dampening inflation (which will raise the interest rate on Variable Rate mortgages and Lines of Credit).  At the previous meeting 6 weeks ago, the BoC had indicated it expected to do a first rate increase in the summer or fall of next year, so today’s message means a first rate increase might come a few months sooner.

While we can’t say with certainty how high fixed rates may go, or exactly when the BoC will step in and begin increasing its prime rate or how aggressively it will do so, we want you to be informed about what is happening now and what may happen in the near future regarding mortgage rates, so you can decide on a strategy that meets your needs and risk/reward comfort level.

For many clients, we still believe there are substantial benefits to continuing with a variable rate mortgage.  Your variable rate has and will continue to save you substantial interest costs for the next 12-24 months, and possibly much longer if the inflationary pressures mentioned above (supply chain issues and labour shortages) do end up being resolved next year.  However, if you decide to stay with your variable rate mortgage you should expect and be comfortable with at least a few prime rate increases over 2022 and 2023.

On the other hand, if you are concerned about your mortgage payments increasing in the future in response to the eventual prime rate increases that will come, it MAY be time to lock in to a fixed rate mortgage now rather than waiting until next year when the fixed rates will very likely be substantially higher..

Should I lock in to a fixed rate mortgage?

Here are some points to consider before locking in your interest rate:

PRO: By converting your variable rate mortgage into a fixed rate mortgage you get the security of having a guaranteed payment amount that won’t change for the term of your contract. This gives you peace of mind and allows you to comfortably budget around predictable payments.

CON:*not to be taken lightly* If you lock your mortgage into a fixed rate (especially with a bank lender mortgage) your penalty to exit your mortgage product will increase significantly.  With a variable rate mortgage, the penalty is 3 months interest cost (based on your mortgage balance and mortgage interest rate at time of cancellation).  If you lock into a fixed rate your penalty calculation will change to the GREATER of 3 months interest OR an Interest Rate Differential calculation (IRD) (https://www.comoxmortgages.com/glossary-term/interest-rate-differential-ird-penalty/).  The impact of a IRD Calculation is that your penalty has the potential to be much larger.  For example: 

  • Penalty on a $100,000.00 at 2.0% variable rate mortgage with a 30 year amortization is approximately $500.00.
  • Penalty on a $100,000.00 at 2.0% fixed rate mortgage with a 30 year amortization could be (as it’s based on the rate that you lock into and the interest rates that the time that you pay the penalty) $2800.00.  (based on 40 months remaining on a 5 year term with Scotiabank, a 2% discount, and a 2.34% fixed rate)

CON: your monthly payments will immediately go up, and you will pay more in interest costs over the rest of 2021 and 2022.

What would the impact of a Prime Rate increase be on your monthly payment?

It can be helpful to envision what a prime rate increase will look like for your mortgage to help understand the impact it would have on your personal budget.

The simple math is that every 0.25% increase in the prime interest rate will increase your monthly mortgage payment by $11.38 per $100,000.00 of mortgage dollars that you have owing.

So if your mortgage balance is currently $300,000, then a prime increase of 0.25% will cause your monthly payment to go up by $34.14 (3 x $11.38).

What should I do next?

If you are comfortable staying with your variable rate mortgage for the next few years because you want the lower interest costs over the next 12-18 months, you like the flexibility of a lower penalty calculation and/or you believe that inflation will be temporary and you are able to weather the prime rate increases that will come, you don’t need to do anything further. 

If you decide you would like to lock your mortgage into a fixed rate, here is the process based on your lender.  Before calling a lender’s customer service, it is helpful to have your mortgage number ready (you can find this in any of your annual mortgage statements, or ask us and we can send it to you).

Please note, there should be no penalty charge for locking your mortgage into a fixed rate.  If you have any concerns during the process, please don’t hesitate to pause the process and reach out to us for advice.

  • Coast Capital Savings CU: please call 1.888.517.7000, or visit your local branch.
  • First National: please call 1.888.488.0794 to speak with customer service.
  • Merix / Lendwise: please contact us and we can assist you with the lock-in request.
  • RMG Mortgages: please call 1-866-809-5800 to speak with the RMG customer service.
  • Scotiabank: please call 1-877-303-8879 to speak with a Scotia rep.
  • RFA Mortgages: please call 1.877.416.7873.
  • TD: please call or visit your local TD branch.
  • THINK Financial: please contact us and we can assist you with the lock in request.

Should I lock in with my current lender, or switch to a new lender?

If you are currently with a bank lender (Coast Capital, Scotia, TD) and you are worried about locking in and then being charged a large penalty to cancel your mortgage in a few years, we can instead move your mortgage to a fixed rate mortgage with a non-bank lender.  These lenders use an IRD penalty formula that results in substantially lower penalty charges than with the big banks.  Moving your mortgage to a new lender does mean paying a 3 month interest penalty with your current lender and going through the whole mortgage approval process again; however, we can often secure a lower fixed mortgage rate with a new lender than your current bank lender will offer for lock in, and these interest savings may offset or even surpass the penalty cost.

If you would like guidance or advice about whether you should stay with your current lender or investigate switching to a new non-bank lender, please book in for a refinance consultation appointment through our website:

Schedule your Lock In consultation appointment

These appointments will be short – just 10 minutes on the phone with one of our team brokers to answer your questions and determine whether it makes the most sense for you to stay variable, lock in, or if there’s an opportunity to get a better fixed rate through switching to a different lender.

More information

Here are some recent news articles discussing economic forecasts and rate predictions for 2021-2022. Please take a look at a few of these so you feel that you are making an informed decision about whether or not to lock in your mortgage:

  1. https://financialpost.com/news/economy/traders-increasingly-doubt-bank-of-canadas-rate-hike-timeline
  2. https://financialpost.com/news/economy/scotiabank-sees-eight-bank-of-canada-rate-hikes-by-end-of-2023
  3. https://financialpost.com/news/economy/canadas-annual-inflation-rate-hits-4-4-in-september-highest-since-2003
  4. https://www.canadianmortgagetrends.com/2021/10/rate-hikes-could-start-by-april-as-inflation-and-supply-concerns-grow/
  5. https://www.mpamag.com/ca/mortgage-industry/industry-trends/will-inflation-force-the-bank-of-canadas-hand-on-interest-rates/314042?utm_source=GA&utm_medium=20211022&utm_campaign=MBNW-Newsletter-20211022&utm_content=47BDF9FE-BA25-4D0E-8C1C-ED3276F6B8B5&tu=47BDF9FE-BA25-4D0E-8C1C-ED3276F6B8B5
  6. https://www.mpamag.com/ca/business-news/traders-cast-doubt-on-bank-of-canada-rate-increase-timeline/313736?utm_source=GA&utm_medium=20211020&utm_campaign=MBNW-Newsletter-20211020&utm_content=47BDF9FE-BA25-4D0E-8C1C-ED3276F6B8B5&tu=47BDF9FE-BA25-4D0E-8C1C-ED3276F6B8B5