Bank of Canada interest rate increase. Prime is at 3.20%.

Bank of Canada interest rate increase. Prime is at 3.20%.

CONDENSED VERSION

• I am not locking in myself and staying variable for a number of reasons

LONG VERSION

You most likely heard that Prime rate increased yet again last week. Prime is now 3.20% with most mortgage lenders (TD is an exception with TD prime at 3.35%). If your current mortgage is a variable rate mortgage, I believe it is still a great choice.

Reason #1

Payout penalty on a variable rate mortgage is only 3 months interest in case you will be looking to sell or refinance. Penalty on a 5 yr fixed closed mortgage could be as high as 4K per every 100K borrowed depending on a financial institution you are with.

Reason # 2

If your variable rate mortgage is with TD, your payment will not change. Their variable rate product has a static payment.

Reason # 3

Lenders want you to select a 5 yr fixed closed mortgage. Variable rate mortgages offer not a lot of benefit to the bank (lower interest / very low payout penalty) but this is something you can benefit from.  Taking no action to lock in, could be a good pro-active action on your part.

Reason #4

At this time the decision to lock in mainly comes from an assumption that since we have seen two prime increases in the very recent past, more will be coming in the future.

Not necessarily.

The government may have overstepped with this recent rate hike and we may see a pull back within the next year. For instance, back in 2010 prime increased 3 times and remained stagnant for 5 years before it got cut again. Something to consider.

The Bank of Canada will be meeting again on October 25, 2017.