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What Mortgage Rate Changes Can Mean For You

By Scott Tremblay on Friday, January 14, 2022

When rates start to move up, the obvious cost of borrowing increases as well.

Depending on what credit has been extended, an increased rate will likely lead to slightly higher repayment costs. Although this can sound ominous, the increases are typically slower and not overwhelming being done over time to keep people from panicking and the economy from slowing again.

In the case of fixed mortgage homeowners, they will not see any differences in their payments until it is time to renew. For variable rate mortgages, they will start seeing the increases more immediately. This is also true for anyone looking at purchasing a new home, since they are subject to the increased rates. 

For new home buyers, look at locking in a low interest rate with a pre-approval or rate hold before spring. These are typically only held for an average of 120 days, but may be long enough to lock in to a lower rate for the closing time of the purchase.

Variable rate mortgage holders will want to look at a cost comparison between their current rates and foreseeable increases. For instance, on a $500,000.00 mortgage at a variable rate of 1.55%, an increase of .50% would result in a monthly payment costing approx $120.02 extra. A 1% increase would be around $244 a month. (*based on 25 year amortization and 5 year term with current rates).

There are benefits of the rate increases as well, with the almost non-existent percentages of savings accounts also getting a slight bump (eventually). In addition, the economy starts to slow down but this can also bring down costs in purchased goods as well as slow down inflation rates. 

Despite recent articles to the contrary, there is no guarantee that rates will rise or by how much. Being prepared by paying down high-interest debts and lines of credit would be prudent. In addition, reach out to a trusted mortgage broker with any questions about fixed or variable rate mortgages as well as costs of borrowing and rate holds. They are always happy to help answer questions and help with planning for a secure financial future in 2022.