Edmonton Mortgage Blog

If you have a variable rate mortgage, your rate has gone up by 1%.

July 14, 2022 | Posted by: Natalie Wellings

You have likely already heard the news; the Bank of Canada has announced a hike to the prime rate. The prime rate affects those with variable or line of credit mortgages, only. It does not affect fixed-rate mortgages. The rate has increased by 1%. The industry was predicting a hike of 0.75% so this 1% hike has taken many of us by surprise.

The good news is that VARIABLE RATE MORTGAGES ARE STILL MUCH CHEAPER THAN FIXED RATE MORTGAGES. On an insured mortgage (less than 20% down payment), a variable rate mortgage is priced at Prime -0.90%. After today’s announcement, the prime rate sits at 4.70% which means you’d pay 4.70%-0.90=3.80%.

The going 5-year fixed rate is around 5.00% so you are still saving approximately 1.20% by going with a variable rate mortgage. This is a significant difference!

Let’s compare a $400,000 mortgage:

• $400,000 @ 5.00% (5-year fixed rate) over a 25-year amortization= $2,326.42/month
• $400,000 @ 3.80% (5-year variable rate at prime -0.90%) over a 25-year amortization= $2,060.94/month

With the variable, you are saving $265.48/month

Conversely, if you already have a variable rate mortgage you will have a 1% rate increase to your mortgage rate. Your payment will rise by approximately $200/month (on a $400,000 mortgage).

I think it is important to keep in mind that, despite today’s announcement, variable rate mortgage holders have fared extremely well over the last few years and should not panic about this latest increase.

If you’d like to play around with mortgage payments, please download my mortgage app. There is a great calculator on there! Click to download: https://cma.me/natalie-wellings/download 

I am always available to answer your questions and talk this through with you. We are in unprecedented times and it’s normal to feel some anxiety over your mortgage and what the future holds. If you are up for renewal in the next year, things can feel especially uncertain.

I still think that a variable is a good option right now; not only does it offer a lower rate than the fixed mortgage, it is also more flexible. You can convert your variable mortgage to a fixed rate mortgage at any time (without penalty). So, if fixed rates eventually drop, you will be able to contact your lender and switch to a fixed rate term. The penalty is also quite low on a variable rate mortgage (3-month interest penalty) so you know you will not be hit with a massive penalty should you need or want to pay off the mortgage before the end of the term.

There is lots to talk about these days; please reach out to me and we can chat about your mortgage and how this latest change affects you.

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