Mortgage Blog

Getting you the mortgage you deserve

Mortgage Strategies in a Rising Interest Rate Environment

October 24, 2023 | Posted by: Steve McArthur

Hello dear readers,

Let's have a coffee chat, shall we? If we were sitting in a cozy café, sipping on lattes (or your beverage of choice), today's hot topic of conversation would undoubtedly revolve around the big "I" – Interest Rates. Ah yes, those two words that make homebuyers' hearts flutter (and not always in a good way)!

If you're like many Canadians, you've been enjoying historically low mortgage rates for quite some time. But, as we know in life, what goes down must eventually come up. And, with murmurs about rising interest rates, it's essential to be prepared and have a game plan. So, let's dive in, and I promise to keep it as engaging as our hypothetical coffee chat.

1. Understanding the Landscape

First things first, we need to understand the lay of the land. The Bank of Canada – our central bank – is primarily responsible for setting the tone when it comes to interest rates in our country. Their decisions are influenced by a myriad of factors, but the big one is inflation. When the economy is booming and prices start rising too quickly, the Bank might hike up interest rates to keep inflation in check.

Now, as a homeowner or potential homebuyer, you might wonder, "What does that mean for me?" Well, when interest rates rise, the cost of borrowing does too. This directly impacts mortgages.

2. Fixed vs. Variable: The Age-Old Debate

Ah, the classic debate: Should you go for a fixed-rate or variable rate mortgage? If I had a dollar for every time someone asked me this question, I'd probably own half of Vancouver by now!

In a rising interest rate environment, the natural inclination is to gravitate towards fixed-rate mortgages. Lock in that rate and protect yourself from future hikes, right? Not always. Remember, variable rates, even though they fluctuate, have historically been lower than fixed rates. It becomes a game of risk versus reward. Can you stomach the possibility of rates going up in exchange for enjoying lower rates now? Or would you sleep better knowing exactly what your rate will be for the next five years?

Consider your financial situation, risk tolerance, and life goals before making a decision. And hey, always remember, you can switch from variable to fixed during the term if you feel the winds of change blowing too strongly.

3. Consider Making Prepayments

If you've got some extra cash lying around (maybe from that side gig or an unexpected bonus), think about making a lump-sum payment on your mortgage. Why? It reduces your principal, and that means less interest accumulation over time. Plus, with higher rates, this strategy can save you even more. Most mortgages allow for a certain percentage of prepayments annually without penalties, so take advantage of it!

4. Refinance Strategically

Refinancing can be a brilliant move in a rising rate environment, especially if you can lock in a rate lower than the predicted future rates. But remember, refinancing isn't free. Weigh the costs associated with breaking your mortgage against the potential savings from a new rate.

5. Adopt a Holistic Approach

Mortgages aren't just about interest rates. As we aim to optimize conversion rates in digital marketing, we should also look at "converting" our mortgage strategies for maximum benefit. That means considering payment frequency (bi-weekly accelerated can save tons of interest), assessing property value for potential equity take-outs, or even considering property investments as a hedge against rising costs.

Wrapping Up

As our imaginary coffee cups become empty, here's the takeaway: Yes, rising interest rates can seem daunting. But armed with the right strategies, knowledge, and perhaps a trusted mortgage broker (wink, wink), you can navigate this environment with confidence.

Remember, the mortgage world isn't one-size-fits-all. Just like how some of us are latte lovers and others swear by black coffee, your mortgage strategy should suit your unique taste and situation. So, whether you're looking to buy, refinance, or just get some advice, always ensure you're making the most informed decision possible.

Cheers to smart mortgage strategies and even better conversations! Let's keep this dialogue going, and as always, feel free to reach out with any questions or thoughts. Until our next coffee chat! ☕

Disclaimer: This blog post is meant for informational purposes only and does not constitute financial advice. Always consult with a licensed mortgage professional before making any mortgage decisions.

Back to Main Blog Page

users image

Hi, How can I help you?