Rates are NOT rising- well, not the way you think - UPDATED
Joel Olson • July 10, 2017
UPDATE: The Bank of Canada has increased their overnight rate to .75% as of July 12, 2017.
Despite many articles predicting interest rates going up. They are not. Well, not in the way you think.
This week the Bank of Canada will meet, as they do several times over the year to determine if its necessary to
increase the Bank of Canada Prime Rate. They have not done so since 2010. Although, it is yet to be confirmed,
there is a possibility that this could in fact be the time they do exactly that.
The prime rate effects every variable rate mortgage, line of credit, investment in Canada. This alone is one of the
major reasons that this decision is made with extreme caution. Essentially, in a very broad view the Bank of
Canada rate is related to how much a bank pays to obtain and access funds. The bank then has their own prime
rate that is directly linked to the Bank of Canada. Almost 100% of the time these prime rates match. However, last
time the prime rate went down, it worthy to note that the banks didn’t pass on the discount right away, and they still
do not pass on the full discount. The major bank world of Canada is small though, so there is very little room for
difference between the major banks on these things, without the prospect of losing instant market share.
So, let's then assume that prime rate is increased, and the banks raise their prime rate to match that. That is likely
what would happen. This means that if you have a line of credit or a variable rate mortgage that your interest rate
will increase. The Bank of Canada hasn’t increased prime beyond .25% in over 25 years. So, let’s prepare for
doomsday, if you have a $500,000 mortgage, your payment would in the most extreme examples increase by $62
per month. Obviously, as balances will be even lower for most people, that increase will be even less. To further
frame this, it is a little know fact, that many variable mortgages do not increase the payments. This means that
your payment remains the same, but the ratio of principal to interest changes, so the risk of a rising payment is
eliminated. The other thing to remember is that with a higher prime rate, it's often a case that lender will create even
bigger discounts on variables.
But- why bother? Still seems risky to you. The value of having a variable still will outweigh a fixed rate in many
situations, here is a great rundown of that, by a great mortgage broker friend of mine:
In any case, the world of interest rates has changed a lot in the past twelve months. Be worried of anyone quoting
you a mortgage rate after a brief two minute conversation. There is much to consider for your life, situation, future
and also many terms on mortgages that restrict you in a way that it is unlikely you would even ask.
If you've been a homeowner for many years, it is likely your property value has increased significantly. One advantage of homeownership is the opportunity to build equity. Home equity growth, partnered with the security of living in your own home, is why most Canadians believe homeownership is the best choice for them! While home equity is one of your greatest assets, accessing home equity is often overlooked when putting together a comprehensive financial plan. So if you’re looking for a way to access some of your home equity, you’ve come to the right place! Simply put, home equity is the actual market value of your property minus what you owe. For instance, if your home has a market value of $650k and you owe $150k, you have $500k in home equity. If you want to stay in your home but also access the equity you have built up over the years, there are four options to consider. Conventional Mortgage Refinance Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance. Let’s say your property is worth $500k and you owe $300k on your existing mortgage. If you were to refinance up to 80%, you would qualify to borrow $400k. After paying out your first mortgage of $300k, you’d end up with $100k (minus any fees to break your mortgage) to spend however you like. Even if you paid off your mortgage years ago and own your property with a clear title (no mortgage), you can secure a new mortgage on your property. Reverse Mortgage A reverse mortgage allows Canadian homeowners 55 or older to turn the equity in their home into tax-free cash. There is no income or credit verification; you maintain ownership of your home, and you aren't required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell. Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, you can access a lesser amount of equity depending on your age. The interest rates on a reverse mortgage can be slightly higher than the best rates currently being offered through standard mortgage financing. However, the difference is not outrageous, and this is an option worth considering as the benefits of freeing up cash without mortgage payments provides you with increased flexibility. Home Equity Line of Credit (HELOC) A Home Equity Line of Credit allows you to set up access to the equity you have in your home but only pay interest if you use it. Qualifying for a HELOC may be challenging as lender criteria can be pretty strict. Unlike a conventional mortgage, a HELOC doesn't usually have an amortization, so you're only required to make the interest payments on the amount you've borrowed. Second Position Mortgage If the cost to break your mortgage is really high, but you need access to cash before your existing mortgage renews, consider a second mortgage. A second mortgage typically has a set amount of time in which you have to repay the loan (term) as well as a fixed interest rate. This rate is usually higher than conventional financing. After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it's paid off. If you’re looking for a way to access the equity in your home to free up some cash, please get in touch. You’ve got options, and we can work together to find the best option for you!
If you’re a first-time homebuyer eyeing a new build or major renovation, there's encouraging news that could make homeownership significantly more affordable. The federal government has proposed a new GST rebate aimed at easing the financial burden for Canadians entering the housing market. While still awaiting parliamentary approval, the proposed legislation offers the potential for thousands in savings —and could be a game-changer for buyers trying to break into today’s high-cost housing landscape. What’s Being Proposed? Under the new legislation, eligible first-time homebuyers would receive: A full GST rebate on homes priced up to $1 million A partial GST rebate on homes between $1 million and $1.5 million This could mean up to $50,000 in tax savings on a qualifying home—a major boost for anyone working hard to save for a down payment or meet mortgage qualification requirements. Why This Matters With interest rates still elevated and home prices holding steady in many regions, affordability remains a challenge. This rebate could offer meaningful relief in several ways: Lower Upfront Costs: Removing GST from the purchase price reduces the total amount of money buyers need to save before closing. Smaller Monthly Payments: A lower purchase price leads to a smaller mortgage, which translates to more manageable monthly payments. Improved Mortgage Qualification: With a reduced purchase amount, buyers may find it easier to meet lender criteria. According to recent estimates, a homebuyer purchasing a $1 million new home could see monthly mortgage payments drop by around $240 —money that could go toward savings, home improvements, or simply everyday expenses. Helping Families Help Each Other This proposal also offers a win for parents who are supporting their children in buying a first home. Whether through gifted down payments or co-signing, a lower purchase price and more affordable monthly costs mean that family support can go further—and set first-time buyers up for long-term success. Is This the Right Time to Buy? If you’re thinking about buying a new or substantially renovated home, this proposed rebate could dramatically improve your financial position. Now is the perfect time to explore your options and make sure your mortgage strategy is aligned with potential policy changes. 📞 Let’s connect for a free mortgage review or pre-approval. Whether you’re buying your first home or helping someone else take that first step, I’m here to help you make informed, confident decisions.
