Coping With Rising Interest Rates
March 25, 2022 | Posted by: Keith Leighton
Coping With Rising Interest Rates
We've observed an uptick in fixed-term mortgage rates from all of our lenders during the last few weeks. In just two months, the banks, including the RBC, TD and Scotiabank, have hiked their 5-year fixed rates by an average of 45 basis points.
Why are rates rising? The yield on Canadian government bonds has the greatest impact on fixed-term mortgage rates. This week, bond yields hit a 3-year high. Bond markets are anticipating further rate hikes, as we are seeing now, and there are concerns about rising inflation, which intensified on Wednesday when Statistics Canada issued February inflation data, which came in at a 30-year high of 5.7%.
The US Federal Reserve is increasing interest rates for the first time since 2018 in a bid to rein in rapidly growing prices. They announced a 0.25% increase in its benchmark rate and hinted at more rate hikes in the months ahead.
Fixed-rate borrowers are safe from rate increases, but will face higher rates when their loans are up for renewal. Data indicates that more than a third of mortgage holders will renew their mortgages in the next two years. Banks profit from the difference between what they pay investors to borrow money and what they charge for mortgages, but there are other considerations in raising mortgage rates.
Over the last few years, we've had historically low interest rates, with expectations of interest rate increases beyond what we're experiencing now by the end of the year, for both fixed-rate and variable-rate mortgages.
This probably isn’t an issue right now if you have a 5-year fixed mortgage that doesn't renew for a few years. We suggest increasing your monthly payment amount by 20% each year to counter any payment shock at renewal time for possible higher interest rates. This will you to save money on interest in the long run.
There are lower rates available from non-bank lenders, but they are only available through a mortgage broker for a short time, and these rates are not available for a rate hold, so you must be ready to move forward.
If you're in the market for a new home, your current mortgage is up for renewal, or you're thinking about refinancing to gain access to equity for investment or to pay off higher-interest debt, now is a good time to act if you want to lock in a lower rate.
If you have questions or would like to speak with a DLC Ideal Mortgage Professional, please call us today!
