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.
Buying your first home is a big deal. And while you may feel like you’re ready to take that step, here are 4 things that will prove it out. 1. You have at least 5% available for a downpayment. To buy your first home, you need to come up with at least 5% for a downpayment. From there, you’ll be expected to have roughly 1.5% of the purchase price set aside for closing costs. If you’ve saved your downpayment by accumulating your own funds, it means you have a positive cash flow which is a good thing. However, if you don’t quite have enough saved up on your own, but you have a family member who is willing to give you a gift to assist you, that works too. 2. You have established credit. Building a credit score takes some time. Before any lender considers you for mortgage financing, they want to see that you have an established history of repaying the money you’ve already borrowed. Typically two trade lines, for a period of two years, with a minimum amount of $2000, should work! Now, if you’ve had some credit issues in the past, it doesn’t mean you aren’t ready to be a homeowner. However, it might mean a little more planning is required! A co-signor can be considered here as well. 3. You have the income to make your mortgage payments. And then some. If you’re going to borrow money to buy a house, the lender wants to make sure that you have the ability to pay it back. Plus interest. The ideal situation is to have a permanent full-time position where you’re past probation. Now, if you rely on any inconsistent forms of income, having a two-year history is required. A good rule of thumb is to keep the costs of homeownership to under a third of your gross income, leaving you with two-thirds of your income to pay for your life. 4. You’ve discussed mortgage financing with a professional. Buying your first home can be quite a process. With all the information available online, it’s hard to know where to start. While you might feel ready, there are lots of steps to take; way more than can be outlined in a simple article like this one. So if you think you’re ready to buy your first home, the best place to start is with a preapproval! Let's discuss your financial situation, talk through your downpayment options, look at your credit score, assess your income and liabilities, and ultimately see what kind of mortgage you can qualify for to become a homeowner! Please connect anytime; it would be a pleasure to work with you!
Why the Cheapest Mortgage Isn’t Always the Smartest Move Some things are fine to buy on the cheap. Generic cereal? Sure. Basic airline seat? No problem. A car with roll-down windows? If it gets you where you're going, great. But when it comes to choosing a mortgage? That’s not the time to cut corners. A “no-frills” mortgage might sound appealing with its rock-bottom interest rate, but what’s stripped away to get you that rate can end up costing you far more in the long run. These mortgages often come with severe limitations—restrictions that could hit your wallet hard if life throws you a curveball. Let’s break it down. A typical no-frills mortgage might offer a slightly lower interest rate—maybe 0.10% to 0.20% less. That could save you a few hundred dollars over a few years. But that small upfront saving comes at the cost of flexibility: Breaking your mortgage early? Expect a massive penalty. Want to make extra payments? Often not allowed—or severely restricted. Need to move and take your mortgage with you? Not likely. Thinking about refinancing? Good luck doing that without a financial hit. Most people don’t plan on breaking their mortgage early—but roughly two-thirds of Canadians do, often due to job changes, separations, relocations, or expanding families. That’s why flexibility matters. So why do lenders even offer no-frills mortgages? Because they know the stats. And they know many borrowers chase the lowest rate without asking what’s behind it. Some banks count on that. Their job is to maximize profits. Ours? To help you make an informed, strategic choice. As independent mortgage professionals, we work for you—not a single lender. That means we can compare multiple products from various financial institutions to find the one that actually suits your goals and protects your long-term financial health. Bottom line: Don’t let a shiny low rate distract you from what really matters. A mortgage should fit your life—not the other way around. Have questions? Want to look at your options? I’d be happy to help. Let’s chat.
