BOC Update (April)

Hi ,

On April 13th, 2022, the Bank of Canada INCREASED the overnight interest rate by 0.50%. The largest increase in the overnight interest rate in 22 years. This was largely due to combat surging inflation which I personally believe has peaked.  What this means to you is that the Prime Rate (2.70%) on your variable rate mortgage or Home Equity Line of Credit (HELOC) has increased to 3.20% effective immediately.Summary of Bank of Canada's Latest Rate Announcement 

• New Prime Rate: 3.20%

• My Rate Forecast: 3-4 more rate hikes for 2022 (0.75-1.00% increase)

• Next Rate Meeting: June 1, 2022

• Next Rate Hike Forecast: Increase of 50 bps (0.50%)

  How will this affect you?

• $24/month increase per $100,000 mortgage balance

• IF you have a TD or CIBC variable rate - your payment remains the same but your amortization increases.

 Three Options to Consider?

• Stay the course if you currently have a variable rate less than 2.70% (Prime -0.50%)

• Convert to a 2 or 3 yr fixed rate with your current lender (Do confirm the rate with me before proceeding with this option)

• If you owe a considerable amount on your HELOC, it may be a good time to consider converting that HELOC into a mortgage.

 5-year term fixed rates currently range between 3.89%-4.49%. Switching to a 5 yr fixed term today is like self-imposing 6-8 rate hikes at one time, hence why I do not recommend it at this time. There will be a time to convert your mortgage to a lower fixed rate in the next year or so. If we were to see the Prime Rate go from 3.20% to 4.70% which is equivalent to 6 rate hikes, your variable rate could be approx. 3.60-4.10% which is still lower than most 5 year fixed rates available today. From a payment perspective, this would increase your mortgage payment by $72/month for every $100k in mortgage owing.What should you do?

• We recommend staying the course with your variable rate unless your current rate is above 2.70% due to the large spread between variable and fixed. I am personally not locking in any of my variable-rate mortgages at this time.

• I do believe we'll see fixed rates fall back down in early 2023 which may be a good time to convert to a longer-term fixed-rate (i.e. 5 yr term)

• The variable rate still provides the flexibility of a low penalty and is likely still an interest saving vs converting to a fixed rate today as noted above.

• It is anticipated that the Prime Rate will come back down again in 2024 due to a recession and the fast-paced increases in the prime rate typically cause this.

• If you would like to lock into a fixed rate, I only recommend a 2 or 3 yr term here and IF you don't have plans on taking out equity in your current home or selling your home for the next 3 years.

If you CHOOSE to switch to a fixed rate, reply to this email to book a call where we will compare the cost and interest savings now vs. your current rate to ultimately help you save money. We have a spreadsheet that will show you the cost/benefit of staying variable vs. fixed over the next few years.

As always, if you know of anyone else that could use this same type of ongoing advice and support, your recommendation will mean a lot as I would love to help them as well. If you have any questions or looking for guidance, feel free to reply to this email or reach out to me directly. Best regards,

Varshan ThavarajahMortgage Broker & Partner | MBL # M1600275Banyan Mortgage Group | FSRA #10680647-404-8812[email protected]Top 1% of Mortgage Brokers in Canada