In 2018 alone, the Bank of Canada raised its benchmark overnight rate 3 times, from 1% in January to 1.75% on October 24.
Rising mortgage rates are a concern to current mortgage holders, many of whom are approaching the end of their negotiated 5 year term. 19% of Canadian mortgage holders will need to renew their mortgage next year, and 68% will need to renew within the next 3 years.
Lending website Ratehub.ca has surveyed over 2000 Canadian mortgage holders about their plans regarding the interest hike. Of the surveyed participants, 82% have a fixed mortgage rate, and 17% have a variable mortgage rate.
TL;DR: Mortgage rates are on the rise, and are expected to continue rising in 2019 and 2020. Renewers can avoid paying increased mortgage fees by shopping around for competing lenders – and by relying on the services of a mortgage broker. To meet the deadlines, mortgage holders should begin their renewal process at least 120 days before the end of their mortgage term!
How will interest rates change next year?
The best five-year fixed rate at the beginning of January 2018 was 2.79%. Now, at the end of 2018, the best fixed rate is 3.34%.
By the end of 2020, most economists expect a minimum of 3 more overnight rate increases to 2.5%.
Scotiabank forecasts the overnight bank rate may reach 3.00% by the end of 2020.
Variable and adjustable mortgage rates could rise 0.75% to 1.25% by the end of 2020.
Are mortgage holders worried?
Of the surveyed mortgage holders, only 36% believe their upcoming rate will be equal to or lower than their current mortgage rate. The average discounted 5-year fixed rate in 2014 was 2.81%, which is much lower than the current best rate of 3.34%.
31% of mortgage holders set to renew next year can only afford $100 or less in mortgage payment increases.
However, many borrowers will be in for a discount.
The current average mortgage rate among survey respondents set to renew next year (fixed term) is 3.65%. The average rate for variable mortgage holders is 2.89% The best variable rate today is 2.59%.
48% of surveyed participants believe their total mortgage payments will stay the same or decrease after renewing next year.
How are mortgage holders responding?
Mortgage holders up for renewal are doing their best to lock down the best possible rate next year.
76% of homeowners renewing in 2019 plan to shop around for the best mortgage, rather than agreeing to their current bank’s proposed rate.
It is recommended for homeowners to start shopping around at least 120 days before the end of their term, in order to meet their negotiation deadlines and have all the necessary paperwork prepared.
Renewers should expect to receive a renewal letter for their current lending institution, offering a new rate. This rate can be compared to the rates offered by competing lenders.
Mortgage holders can also rely on the professional services of a mortgage broker, who will compare best rates across lending institutions to find the lowest available option.
The majority of homeowners renewing in 2019 (64%) went straight to a lender when applying for their mortgage, such as a bank.
In contrast, 65% of surveyed participants believed the best rate at renewal could be obtained through the use of a mortgage broker.
Although rates may be on the rise, many borrowers renewing in 2019 can expect to secure a lower rate, or a lower total mortgage payment, than they did 5 years ago. To do so, they should start their mortgage search as soon as possible, shop around at competing lending institutions, and consider consulting with a mortgage broker. Note that all mortgage broker services are free for buyers and borrowers.
This article, How Are Mortgage Renewers Preparing For Next Year’s Interest Hikes? appeared first on Shupilov News.