The B of C’s Effect on Variable Rates

Speculation is that the Bank of Canada is planning at least two rate hikes this year of 1/4% each.

Here’s a table that shows approximately how much payments would increase on a typical variable rate mortgage with a 1/4 point rate hike.  It’s based on the current average variable rate of 5.15%, amortized over 25 years.

Mortgage Amount Payment Increase
$100,000 $590.17 to 604.58 = $14.41
$200,000 $1180.35 to 1209.17= $28.82
$300,000 $1770.52 to 1813.75= $43.23
$400,000 $2360.69 to 2418.33= $57.64
$500,000 $2950.87 to 3022.92= $72.05
$600,000 $3541.04 to 3627.5= $86.46

Some lenders offer a “hold your payment” feature to keep your variable rate mortgage payment from increasing if rates rise.  However, the portion of your payments going to interest will jump–decreasing the amount you pay towards principle.

  1. My broker quote us a variable of prime – 0.9%. He said that was the best rate available today. Anyone know if there are any lenders below that?

  2. Hi Van, If your credit profile is good you can get better than Prime – 0.9%. Feel free to call me for specifics.

  3. I currently have 5-year fixed @5.2% which is up for renewal March 08. What are the forecasts for next 9 months on 5-year fixed rates?

  4. It’ll probably be 1/2-3/4 point above the variable rate if history is a guide.
    If the Bank of Canada raises 1/2 point this year then that means 6 1/4% or so.

  5. Hi Jen,
    There are a few good products out there with better rates than P – 0.90%. Feel free to call me for details. You should be able to get over 1.00% off prime if your credit profile is good.
    Melanie
    Melanie McLister
    Mortgage Planner
    Mortgage Architects
    (800) 280 – 2460

  6. My broker recently quoted me a 5-year variable mortgage @ 5.62%. Is this a good rate or should I continue to look around?
    Thanks,
    Andrew

  7. Hi Andrew,
    Thanks for the post. You’ll find there are a lot of “variables” to a variable mortgage. The best rate will depends, for example, on the features you need, your credit profile, the property, etc.
    However, if all you’re looking for is a basic 5-year variable rate mortgage–and you have a good lending profile–then you might very well find a better deal elsewhere. Again, it depends on a lot of things. If you’re at all unsure, it may pay to get a 2nd opinion. You can find another mortgage planner online or feel free to drop me an email as well.
    If, after researching it more, you find your original broker is on the money, then reward him with your business.
    Good luck!
    Melanie

  8. I currently have a 5-year fixed mortgage @4.5% which is up for renewal in June 09. I also have a secured line of credit full available and sufficient to pay off the mortgage at Prime.
    Is it worth to break one year earlier and payoff through my LOC (at current prime)? I can lock up my LOC then (from TD).
    Please advice.

  9. Hi Rob,
    According to TD you can lock-in any part of your LOC. So, locking at 4.75% as compare to current fixed rate should not be a bad decision!!
    Am I right?
    Gajinder

  10. Hi Gajinder,
    4.75% is TD’s prime rate. Prime rate fluctuates so it is not a “locked-in” rate in a strict sense. It changes as the Bank of Canada changes it’s overnight rate.
    A fixed rate, however, is locked-in. It does not change for the entire term. TD’s discounted fixed rate is listed at 6.09% as of today. If you moved your LOC into a fixed rate mortgage today you would not get anything near 4.75% (unless TD is giving away money–in which case, call me up!).
    Cheers,
    Rob

  11. What is the best rate available for a closed 5-7yrs term today?
    I have an open variable mortgage.
    Is it a good idea to lock it?
    Please advise me.
    Thanks/

  12. One month ago,I locked my mortgate for 5 year fixed term @5.15 from bank.Earlier I have closed variable @Prime-.75 from same bank.
    I am first time buyer & also new to Canada,so I opted for Fixed term although my own experience & insticts were advising me for variable.
    Now fixed rate are around 5.8 from banks,but some friends of mine told me that rate of around 5.4 from non banking institutions is still available.
    Let C what is ahead…with true or false rumours of Inflation ,Ontario’s economy,gas prices and so many other factors.
    Thanks!
    Gerry

  13. Hi everyone,
    Just getting settled in the new office. Sorry for the delay in responding.
    Hi Jad: We’d be happy to research a rate quote for you. Please shoot me an email whenever you have a chance.
    Hi Don: As with Jad, I’d need just a little info on you before suggesting a gameplan that’s suitable for your situation. Feel free to call or email us any time.
    Hi Gerry: If a fixed fits your profile then that’s a very decent deal. Anywhere near 5% is outstanding these days.
    Cheers,
    Rob

  14. Hi Lisa, Thanks for the question. The best bet is to call a good mortgage planner for this answer. It really depends on a lot of factors, especially your own personal financial situation. – Rob

  15. Hi,
    I live in calgary,
    I currently have a 5-year fixed mortgage @5.2% which is up for renewal in June 2011,also have a secured line of credit full available and sufficient to pay off the mortgage at Prime.
    Is it worth to break 2.5 year earlier and payoff through my LOC (at current prime)? I don’t have any lock up LOC yet.
    I will use my HELOC, what the risk of using HELOC with mortgage term?
    Please advice.

  16. The rate on your HELOC is not guaranteed. That is the rate your bank is charging at the time. Nothing is set in stone and they can change what they want you to pay at any time, so it’s a risky road if the prime rates start going up, or if they decide to start charging a premium on the prime rate.

  17. Just a short note to let people know what can happen if one loses their job, like I did.
    My R1 credit tanked because I got behind in debt payments. My financial institution would not renew my mortgage. I had to go to a broker and the best I could get was one year at 10.5%
    I refinanced and paid the mortgage a year in advance. I still can’t find work and am forced to sell at a price that will pretty much leave me with just my shirt on my back :-(
    Just make sure you don’t spend too much when buying a home. Lock in to a longer term. The rate may be higher but you will be able to sleep at night when rates start to soar (look at the technicals…a long retracement from historic lows appears imminent). Be disciplined and save for a catastrophe.
    Hmmm…that was more than a short note. I apologize.
    Freddie

  18. I feel for Freddie and others in his situation.
    My wife and I bought our house right at the start of the price jump. A year ago our house value had doubled from when we bought 4 years prior. We were on a prime -1 variable, which came due in July 09. My mortgage broker had been hounding me to leverage the house, which I did not. We made a large down payment and maximized the payments over the initial term. Now we have a mortgage at 3.64% for 5 years on just over $100k. I set my payments at what I can afford, with room to decrease if I lose my job. I will buy all my toys after the house is paid for.
    If one uses their house as there own bank account, you run the risk of losing everything. No one saw the down turn coming and lasting so long or being so severe, but the lending/borrowing practices of individuals didn’t help the situation. Leveraging is dangerous, because you are repaying the debt with after tax dollars and paying income tax on the interest you earn. You can deduct the interest you pay on the loan, but that does not offset the tax load fully. To break even on leveraging (Smith manouver), you must exceed double the loan interest rate. If you pay 5% on the loan, your investment needs to make over 10% to break even. But no lender ever tells you that when you leverage.
    My wife and I will be mortgage free in just over 5 years. I have increased our payments to 130% higher than the minimum. The feeling in the economy now is, pay down your debt as quickly as possible, because when the interest rates turn around, we will be in for a world of hurt, if we borrowed to our affordability limit at these low rates.
    Have some foresight. The CDN overnight rate is at 0.25%, even lower then in the 50’s when it’s previous low had been 1.12% (1952 I think). A 0.25% increase in interest raises a montly payment on $100k by about $14.50. On $500k that is $72.50 per month. When interest rates return to what they were in 2007, with a mortgage prime of 6% (3.75% higher than now). The difference in payments on a $500k variable will be 15 x72.50 = $1087.50 more a month than you pay right now. If you can barely afford your $500k now, what is going to happen 5 years from now, when you can’t afford the best rate you can get? Good luck to all!
    I have a degree in economics, but my father taught me more about money than any University has and he was a farmer in SK.

  19. Hi Don
    My name is Mat
    I was looking for a best mortage for 5 year closed and I have finded out that CIBC could come down from posted rate of 4.09%
    to 3.59%.
    It takes a bit of your time to talk to the mortgage specialists.
    branczes from the same bank will fight to get you busines.
    Last final advice bargain, bargain
    with the mortgage specialists.
    thair posted rates are not set in stone they can ask for discounts in thair head offices.
    good luck

  20. Hi Melanie and Rob,
    I want to break my fixed-rate mortgage and go with 5-year term of variable rate. Could you please explain the difference for a variable rate between interest is compouned semi-annually and interest is calcualted monthly not in advance?
    Thanks,
    Nancy

  21. Hi Nancy,
    Thanks for the question. In simple terms, compounding affects the formula lenders use to calculate how much interest to charge you.
    Without getting into mathematical equations, suffice it to say that semi-annual interest compounding costs you less than monthly compounding.
    Depending on your mortgage size, it’s usually not enough savings to sway one’s choice of lenders. Monthly compounding, for example, might cost you a dollar more than semi-annual compounding each month—assuming a $100,000 25-year mortgage at 2.50%.
    Cheers…
    Rob

  22. Hi Marie,
    This is an old post so the rates are out of date, but one can still find prime – 0.60% (as of today) on variable-rate mortgages. 1-year fixed terms are even less.
    Cheers,
    Melanie

  23. speculation of two rate hikes this year? huh? i thought all ‘speculation’ was hikes mid next year…

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