Next steps for home owners after BoC rate hike

It’s not a surprise the Bank of Canada raised rates again. However, it was a bit shocking to see them push the overnight rate up a full per cent, instead of the 0.75 per cent most of us were expecting. So, for people with mortgages, you may be wondering: Now what do I do? These changing times are causing much stress for borrowers and home owners, especially those with variable-rate products. Here’s our outline of some practical next steps after this BoC rate hike.

Focus on cutting extra spending

The time is here to tighten the purse strings a little. For every $100,000 in mortgage debt, variable-rate mortgage holders will see about a $55 per month increase in their payments. This is a substantial jump, and it may cause strain on some households. It might be a bumpy ride for a while, so we recommend borrowers be very careful about what they spend money on right now. Inflation needs to get in line before the bank will lower rates, so do your best not to overspend and contribute to inflation in the market. 

Budget carefully

Part of budgeting these days is to be very mindful of your needs and your wants, and separating them before spending. Everyone deserves the enjoyment of non-essential spending on things that make us happy, but right now, it’s important to prioritize the payments you need to make before anything else. Your mortgage payments, credit card bills, and utilities should all come first. This will ensure you don’t put yourself into debt and collect extra fees that will make your finances worse. It’s not a desirable situation to feel like you have no room for “extra” spending, we know, but this tricky situation won’t last forever. You can compare your income and expenses to determine a budget that works for you. You can also download a budgeting app if you want an extra hand organizing your finances and keeping track of your payments. These can be handy when you need some assistance organizing your money.

Contact a broker

We want you to know we’re here for you in times of need and stress. If you want to discuss your mortgage situation, you can always reach out to us for guidance. Even as rates increase, a refinance might be a helpful option for you right now, depending on your needs. For example, a refinance could allow you to extend your amortization period, which means your monthly payments would be lower to give you more financial wiggle room. This does mean you will be making payments for a longer period, but each payment will cause you less financial strain. 

If you’re wondering if you should lock into a fixed rate, we still encourage most borrowers to hang onto their variable rate. As unpredictable as variable rates are right now with BoC rate hikes, they will lower once inflation subsides, and especially if we hit a recession. Historically, variable rates tend to save borrowers more money in the long run than fixed rates.

The bottom line

Inflation needs to go down before we see the end of BoC rate hikes. The bank has been very clear that it will keep rising rates until inflation subsides. The bottom line is Canadians need to stop spending. The more demand there is for goods, and the more we spend, the higher prices go and the more inflation creeps up. The bank is trying to send a message that it’s time to cut back.

We understand these times are challenging for many. Once again, we want to add a dose of positivity by reminding Canadians that these trends will not go on forever. In the meantime, if you have concerns about your mortgage, feel free to reach out.

Have questions about your mortgage? Get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.