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With the interest rate hike, is fixed or variable the best option?

After Bank of Canada’s announcement, Mortgage Wellness guides home buyers through the next steps

Mortgage Wellness helps families live better by providing non-traditional, customized solutions for property owners. Whether you are a first time homebuyer, upsizing or downsizing, buying rental properties as an investment or in need of a construction mortgage, Mortgage Wellness has a proactive solution.

Mortgage Wellness does not focus on “selling” to clients, but on informing, educating and empowering clients. Nowhere is this more necessary then when it comes to rising interest rates.

Today, Mortgage Wellness explains the recent rate hike, why it is necessary, and how it affects home and property buyers.

The Rate Hike

On July 13, Bank of Canada announced a 1.00% interest rate hike, the largest single hike since 1998.

Speculation was that Prime Rate would hit 5.2% over the long-term. However, with the previous rate being 3.7% and the hike being 1.00%, the rate now sits at 4.7%. There is a chance that the rate will see another jump in the near future as Bank of Canada struggles to control runaway inflation.

Additional hikes may be announced after these upcoming Bank of Canada meetings this year:

  • Wednesday, September 7
  • Wednesday, October 26
  • Wednesday, December 7

The Impact of the interest rate hike on the housing market

Variable mortgage rate mortgages, adjustable-rate mortgages and home equity lines of credit are tied to Bank of Canada rates, meaning those who have these products will feel the brunt of the impact.

However, it is the opinion of Mortgage Wellness that a variable rate mortgage still may be a great option for those looking to borrow. This is because variable rates are still priced lower than fixed rates and as such, represent a cost saving to potential buyers and those seeking a mortgage.

Reasons to choose variable rates

A first-time home buyer could currently obtain a variable interest rate of Prime -1.00%. That would give them an interest rate currently equal to 3.7%, after today’s increase. If the same buyer chose a fixed rate, they could currently obtain an interest rate of 4.89% (5 year fixed). That’s a current difference of 1.19% between the two rates.

On a $500,000 mortgage with a 25-year amortization, the savings between a variable rate of 3.70% and a fixed rate of 4.89% is $327.37 per month.

However, its important for home buyers to know that increases to the Prime Rate are expected going forward.

Make an informed choice

The choice between variable and fixed depends on the buyer and their situation.

Mortgage Wellness has the experience and innovative solutions needed for home buyers to not only enter, but to thrive in this changing landscape. Do not make important decisions about home and property ownership/investment without relying on professional advice.

Times are changing. They help your real estate strategies change with the times.  Learn more about Mortgage Wellness online here.