Decision time for mortgage renewal
Economists expecting interest rates to rise
Homeowners with variable-rate mortgages have seen their rates rise over the past year as the Bank of Canada has raised its key interest rate target four times.
And now, with economists expecting the central bank to raise its target interest rate again next week, those who have continued to stick with the variablerate option may again be thinking about converting to a fixedrate mortgage.
Scott Evans, a financial planner at BlueShore Financial in North Vancouver, B.C., says you should ask yourself why you decided to choose a variable-rate mortgage in the first place and if anything has changed.
“Was it something that you really thought about or was it something that you just chose because it was the lower rate at the time,” he said.
The Bank of Canada has raised its key interest rate target by a quarter of a percentage point four times since July 2017, increasing it by a total of one percentage point to 1.5 per cent.
Those moves by the central bank have prompted the country’s big banks to raise their prime lending rates, taking the amount charged on variable rate mortgages higher.
“Historically, you’ve been better off in a variable rate as far as rates go, but rates do fluctuate and if you see rates go up more of your payment will be going toward interest rather than principal,” Evans said.
“If that’s something that keeps you up at night then I think, yes, you should be looking at a fixed.”
Omar Abouzaher, regional vice-president at Bank of Montreal, says the majority of the bank’s customers go for fixedrate mortgages, opting for the certainty they provide over the term of the loan.
“We are in a rising interest rate environment and it is always good to have a pulse check basically and have a mortgage review with your bank just to review where you are and assess your options,” he said.
Abouzaher said switching to a fixed-rate mortgage can give you peace of mind because you will know what the interest rate you will be charged for the term of your loan. “You are not subjected to any fluctuations or surprises,” he said.
But converting to a fixed-rate mortgage does not come without down sides. The savings come if rates continue to rise, but if you lock in and rates don’t continue to rise or even reverse course, you could end up paying more in interest than you would have if you stuck with the variable-rate loan.