Today there is no doubt that we enjoy some of the best mortgage rates in the last 50 years. Yes we are at an all-time low and that means that rates have only one way to go…up. Eight years ago I had a mortgage at a rate of 5.29% and it was painful to watch them drop as I had no recourse but to either pay a penalty or suffer through to the bitter end and renew it as early as I could. Which is what I did and once inside the allotted time frame I switched from 5 year fixed mortgage to a variable rate mortgage at prime minus .65% or now 2.05%. My payment difference was almost 800 dollars a month so a big difference in the right direction.
What about it going the other direction and how will 500 dollars a month affect your home budgets? Are you prepared for the renewal in 2020 that may be considerably higher than the 2.69% or lower mortgage you have today? Will it mean that something has to be let go, perhaps you’ll need to drive your car a little longer and hold off on a couple of holidays because 6000 dollars a year is going to make a difference.
Below is a link to TD’s interest rate projections for the next 4 years. To simplify what they said when they talk about the 5 year bond, we add to it their usual mark up for mortgages of 1.8% so in 2019 when they say they expect 3.3% bond then the 5 year mortgage would be 5.1%, up a long way from today 2.69%. Let’s say on a 350000 dollar mortgage that the average payment today at 2.69% is 1603.00/month if the new rate is 5.29% (which is what mine was 8 years ago) your new payment at 5.29% would be 2105.00/month. You’re probably paying less than that today with your property taxes included.
Good news is also that they expect the Bank of Canada rate to stay at .50% through to 2017 and then see increases. This will of course also effect prime rates which will continue to climb through to 2019 and the Variable and Adjustable rate mortgages will feel the difference then.