The Bank of Canada has increased their overnight rate by a full percent, to 2.50% from 1.50%. The rate increase was to be expected, but not by a full percent. This is the fourth time this year that the Bank has acted to combat inflation in the current markets. Previous increases were much smaller (0.25% in March and 0.50% in April and June).
This will likely not be the last rate increase we will see. When the Bank of Canada raises the overnight rate, it creates an inverse effect of cooling spending, thereby curbing inflation. I know we have all been feeling the price of groceries and gas.
What should you do with your variable rate mortgage?
As a rule of thumb, if your interest rate is still less than 3%, it does not make sense to convert due to rising interest rates. I can help you develop strategies like increasing payments or the frequency of your payments to help mitigate the risk of higher interest rates.
Your decision should be based on your financial situation, mortgage terms, current interest rate, mortgage balance and future plans.
Lenders and the media can create a panicked frenzy when interest rates rise, which might encourage you to think about locking in now in fear of rates going up again. This means more profit for the lender, a longer financing commitment from you and difficulty breaking that mortgage later.
Don’t panic! If you feel unsure of what to do next and want a review of your mortgage, reach out and let’s chat. I am here to help and have the resources!