Mortgage Guide: The Effect of Rising Rates On Your Mortgage

If you are active in the Windsor real estate market, you know the effect the rising interest rates have had. Buyers looking for Windsor homes for sale have seen pre-approvals altered. Others thinking about renewing their search for houses for sale in Windsor have seen their buying power reduced when getting pre-approved again. So what effect do these increases have on your mortgage? Let’s dive deeper.

On June 1, the Bank of Canada announced its second consecutive .5% increase to its policy rate, it's the third increase in 2022, and signalled its intention to continue increasing rates in the short term. For homeowners with a variable-rate mortgage, they’ll feel the effects of the increases immediately as their lenders increase their prime lending rate. Some may see an increase in your payment and others may find that a higher portion of your fixed payment is going toward interest rather than principal. With 3 increases in the book and more to come, some may consider if it is time to convert to a fixed rate mortgage, even if you aren't due to renew soon. We’ve talked in the past about variable vs fixed rate mortgages but even as rates rise, variable rate mortgages will still have advantages. The key question is how high will rates need to get to make it worthwhile to move to fixed.

The difference in rates between fixed and variable mortgages today on a 5-year term is approximately 1%. Even with the Bank of Canada signalling future increases, it would take several to make a monthly payment under the variable-rate contract equal to the fixed. Also consider that rate increases may not continue through the end of your term. It is important to keep your eyes on the horizon as the Bank of Canada also projects an easing of inflation by 2023. In addition, if you aren’t at the end of your term, there may be costs associated with breaking your contract and the rates offered may not be the ones you think you are getting.

Your best course of action is to always speak to the professionals who specialize in their area. That means getting in touch with your mortgage broker and having a discussion with them about what is best for you and your situation.

Here at Jump Realty our agents will give you honest advice on what course of action is best for you in their professional opinion and will always put taking care of your best interests first! With offices in Windsor, Tecumseh, Kingsville, LaSalle, and Chatham, no matter where you are, a Jump agent is ready to help. Please contact us for any housing needs and let us give you a better real estate experience!