The next BOC meeting is next Wednesday, Sept 7th, 2022. We anticipate that they will increase the Prime lending rate by something between 0.50% to 1.00%.
In terms of mortgages, this increase only impacts variable/adjustable-rate mortgage holders since the banks and mortgage lenders typically increase their consumer Prime rates in step with the central bank’s Prime rate.
If you have a variable rate mortgage with adjustable payments, you can expect your payments to increase yet again. Remember that each 0.25% increase in Prime Rate will increase your payment by about $13.00-$15.00 per $100,000.00 of mortgage dollars that you owe.
For variable-rate mortgage holders with a fixed payment, the increase in Prime will cause the interest portion of your payments to increase (resulting in less of your monthly payment going towards paying off your loan balance). Also, if you have this type of variable rate mortgage, you may be nearing your trigger rate (the point at which there is no longer enough money going towards paying down your loan, so the monthly payment has to be increased). So, although your payments have not changed up to this point with the previous prime rate increases, if you hit your contract trigger rate your lender will contact you with a few different options:
- You can modify your mortgage payment – Your payment will need to be increased, so that you continue paying down your loan balance.
- You can make a prepayment – The trigger is dependent on the remaining balance of your mortgage. If you make a lump sum payment, that would extend (increase) your trigger rate. Please make sure that you check your with your lender to ensure that your mortgage allows you the flexibility to make these adjustments without incurring additional fees or expenses.
- You can switch to a fixed-rate mortgage – In most cases you can lock into a fixed-rate mortgage without penalties. By doing this, you will lock in at current rates. While this strategy may give you peace of mind, it could cost you more in the long run. Plus, your monthly payments would increase significantly.
Feel free to contact us to ask to chat about current fixed rates offered by your lender.
- You can switch to a new lender – This option would give you access to insurable rates which may be more favorable than your current lender is offering. There may be additional fees with this option.
If you’re concerned about your trigger rate, please reach out to us to book a quick phone appointment to chat about your options.