What to Know About the
With recent Bank of Canada interest rate hikes, and more on the way, here is what you need to know about how these fiscal policy changes affect your mortgage.
First and foremost, the interest rate hikes directly affect individuals that currently have an adjustable-rate mortgage. Depending on your mortgage amount, you're looking at a potential mortgage payment increase of $40 per month for every $100,000 of balance owing. For example, if your mortgage balance is $400,000 then your monthly payment will increase approximately $160 per month.
As Canada’s lending prime has increased, variable rates increase as these rates are tied to prime. Payments need to increase respectively to ensure the scheduled amortization remains the same. Hence you will still pay off your mortgage as the original amortization shows. For those individuals on a fixed-mortgage, you will not be affected by these interim changes outside of renewing your mortgage. If you’re mortgage is up for renewal, you will likely be renewing at a higher rate depending on your lender. If you’re still six months away from renewing, it may be a good idea to look into the options for early renewal to avoid getting caught up in another interest rate hike later this year.
All rates, fixed or variable are expected to rise more over the summer months. Please reach out to me today to discuss obtaining a rate hold. I can lock-in an interest rate for 90-120 days while you plan your next step whether it is renewing, purchasing or planning for changes.
If you're not currently a homeowner, but were looking at getting into the marketplace, it is a good idea to revaluate your budget and potential calculations for homeownership to ensure that your estimates are in line with the new interest rates. Download my mobile app My Mortgage Planner to play around with calculators and review your budget.
While interest rate hikes affect everyone, understanding the dollar value change for your situation and adjusting your budget accordingly, can help ease the pressure from increased mortgage costs. If you have any questions or are not sure what your next move should be, don’t hesitate to reach out to me today! I’d be happy to help review your situation and walk you through your options.
According to social media, the entire world is collapsing.
Let us break it down. *I am not an economist.
Where is our inflation coming from?
At any given moment in time, we have a fixed amount of goods and services versus a fixed amount of currency.
If we increase the amount of currency available and the number of goods and services remains the same, the price of goods will inflate.
If we decrease the production of goods and services versus a fixed amount of currency, the price of goods and services will inflate.
If there is pent-up demand (increase) for goods and services versus a fixed amount of currency, the price of goods and services will inflate.
The above three have all happened in the last 2 years due to covid and we are now seeing the result of these events.
How will inflation stop or slow down?
Decrease the demand for goods and services.
Increase the supply of goods and services.
Increase the demand for currency.
Decrease the supply of currency.
What can the Bank of Canada do?
The only thing they can do is increase the rate. When they increase the rate, the demand for currency will decrease. Less currency is available, in turn decreasing the price of goods and services and slowing down inflation.
How do you defend against this?
Do the math. Let’s make some assumptions:
1. How long will it take to go back to normal: 2 Years
2. How much extra interest will you pay: 2%/year
3. Average mortgage size: $600,000
The above is my guestimate.
Total Cost: $600,000 x 2% x 2 Years = $24,000
If you can afford the extra $24,000 in cost over the next 2 years with your income, line of credits, investments etc., then you are ok.
What should you do in this situation?
1. Run your numbers and know your numbers.
2. Structure line of credits against your properties(s)
3. Look at converting to 1, 2, 3 year fixed rates if the variable rate = fixed rates
What are investors going to do?
“Be greedy when others are fearful.”
Investors are going to buy in this market. They are going to structure line of credits/mortgages against their properties and prepare their financial position to qualify for lending.
What is a good strategy to buy as an investor?
With higher rates, cash flow is going to be restrictive. So instead of buying a $800k property with $200k down, it makes more sense to buy a $500k property with $200k down.
Which homeowners are going to buy in this market?
1. New home buyers as they are still paying insane amounts of rent.
2. Home buyers that want to upsize or downsize in a calm fashion.
Are there more risks to consider?
Let us use a 40-year-old making $120,000/year and will work till age 65.
Death: $120,000 x 25 years = $3,000,000 Risk
Disabled and can no longer work: $120,000 x 25 years = $3,000,00 Risk
Critically Ill: $120,000 x 3 Years = $360,000 Risk
The above risks make the interest rate risk look small. Something to think about.
What is the next step?
If you would like to discuss your options for mortgages & insurance, feel free to set a time: https://calendly.com/robertkleinmeeting/20min
Mortgage Broker & Commercial Realtor
Pacific West Mortgages Inc. & NAI Commercial (Victoria) Inc.
C: 778.896.6732 | F:604.648.9701
Visit our website at www.robertklein.ca
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