Faced with rising interest rates, there is unfortunately no miracle recipe that applies to all scenarios. You have to develop your own solution, says Carl Thibeault, senior vice-president, Quebec, at IG Wealth Management.
“As a homeowner, you first have to check whether the expiry date of your mortgage is approaching,” he points out. You also need to know what his current rate is and see if it’s worth reviewing, or even breaking, his contract. »
The leader of the investment company admits that forecasts are difficult to make. “It’s a good time to consult a professional. It’s sad to say, but there is no single answer. It all depends on individual goals and budget. »
The one who is already taken by the throat will not necessarily make the same decisions as the one who has more financial means.
For example, if you have a mortgage loan of $300,000, a 1% increase can increase the monthly payment significantly. The owner must consider whether he is able to pay an additional $250 per month.
Carl Thibeault, Senior Vice President, Quebec, IG Wealth Management
Fixed or variable rate?
A mortgage is not just about its rate, but it is nevertheless a major element. So, what to choose between a fixed and variable rate? “At the moment, we have several clients who have benefited from an excellent variable rate in recent years. With such a gap with the prime rate, they benefit from keeping their contract even with a rate increase,” replies John Fucale, senior vice-president, broker relations, at Multi-Prêts Hypothèques.
The expert is of the opinion that unless you are too stressed by the uncertainty, the variable rate is a better option than the fixed rate, and this, “for 70 years”.
Some lenders also offer the option of paying a fixed installment to offset the increases. This way, the owner knows how much he has to pay even if the rate changes. On the other hand, the duration of the loan increases since it pays less capital each month.
Carl Thibeault notes for his part that a fixed rate allows you to buy peace of mind, especially if you have more limited resources. “It may not be the most advantageous, but it gives us security. »
In the current situation, some may be tempted to break their mortgage contract to benefit from a better rate. “However, you have to look at whether there are penalties for doing so,” warns Carl Thibeault.
Mariève Paradis, she did not wait with folded arms. The information agent in the health network broke her mortgage in February, which was due to expire in March 2023. “I had a five-year closed term at a rate of 2.45%. According to some economists, it could go up 1% by next year and I thought that was a lot,” she said.
With her financial institution, she evaluated different scenarios before opting for a five-year variable rate mortgage with a floor and a ceiling. “I can’t go higher or lower than so many, but I’m at 1.44% right now. It’s still 1% less than what I had, ”rejoices Mariève Paradis, who has the impression of having made a good deal.
“In addition, the interest that I would have paid until 2023 with my old mortgage reimburses the penalties caused by the breach of my contract,” she adds.
Book a rate
Prospective buyers and homeowners can also reserve a mortgage rate up to 120 days before their new home purchase or renewal date.
“The advantage is to have the guarantee that the rate will not change even if there is an increase”, explains John Fucale, who however thinks that there is no reason to panic. “The game plan has not changed. The consumer can still benefit from very good rates, which are historically lower than what we have seen in the last 100 years. »