How To Protect Yourself From A Mortgage Interest Rate Increase
One of the questions I get asked all the time is, “how do I protect myself in case of a mortgage interest rate increase?” To help you with this challenge, I’ve put together 3 points you can use to protect yourself if the mortgage rates go up. These points are the real deal, but first off, some context around what has happened recently with mortgage interest rates and where we’re headed.
Mortgage interest rates have never been lower. Mid January 2012 represented the lowest of the low when BMO announced a rate of 2.99% for a fixed 5 year. Other banks followed suit. Here’s the deal: the offering of such low rates wasn’t necessarily a profitable strategy for banks. The strategy was designed to bring clients into branches during a very slow time of the year and perhaps more importantly, give the branch sales force an opportunity to cross sell investments as we approach RRSP season.
When BMO announced their ground breaking 2.99% mortgage rate they intended to keep the rate until February 29th. However, late last week BMO and a number of other banks have pulled back their deeply discounted rates due to increased competition and rising borrowing costs for the bank. The result is that these deeply discounted fixed rate mortgages may increase slightly over the coming weeks. Here’s the take home message: this shouldn’t be seen as an increase of fixed rate mortgage but rather an adjustment to more normal and sustainable pricing.
This price adjustment to more “normal” levels is fine and dandy if you are a bank but as a mortgage borrower a price increase is a price increase. Bottom line, it affects your wallet.
Depending on your situation, here’s what you can do to protect yourself from a mortgage interest rate increase:
Situation 1: Pre-approval. If you’re thinking of buying over the next 4 months get a pre-approval. When you have a pre-approval in place the rate set out in the pre-approval document is held for you over the next 120 days. If rates go up, you are protected. If rates go down you get the benefit of the lower rate. If you decide to do nothing then the pre-approval expires harmlessly.
Situation 2: Mortgage Maturing. If your existing mortgage is maturing in the next 120 days connect with your lender to find out what rate they will offer you at maturity. If the rate isn’t competitive engage a mortgage broker who will find you a competitive rate to attract your mortgage business.
Finally, work with a mortgage broker. OK, a little self-promotion, but seriously, mortgage brokers shop the market for you. And their service is free. Best of all, they specialize in one specific area, they know the ins and outs of the market, who is offering what, and the fine print. And if you get a good one, they’re always in touch with you, keeping you in the loop, watching the market for changes that might affect you. I’d love the opportunity to work with you.
If you have a question about your mortgage, contact me here or book a call into my calendar below.
