Mortgage Blog

Mortgage It Right!

Mortgage Rate Increase: Don't Let the Media Scare You!

July 18, 2022 | Posted by: Kelleway Mortgage Architects


The 1.0% increase (last Wednesday, July 13, 2022) on top of the previous increases of 0.25%, 0.5%, 0.5%, amount to 14-month record-breaking 2.25% increase. The Banks (Lenders) have now set their Prime Rate(s) to 4.7%. Governments around the world have warned there may be more increases if the inflation rate continues upward.

What questions do busy people like you need to answer?

Will my FIXED RATE mortgage payment go up?

NO, the mortgage payment will not change. The fixed-rate mortgage has a fixed payment and fixed rate for the term of the mortgage

Will my Payment on my Variable or Adjustable (Var/Adj) mortgage go up?

YES, and Yes.
Immediately and soon.

Immediately for some Var/Adj mortgages
Your next payment will need to be higher as the mortgage adjusts to continue to pay off the mortgage according to the contract.

How much will my Var/Adj mortgage payment increase?
This 1.0% spike will result in an increase of about $55 per $100,000 mortgage (e.g., a $500,000 mortgage would increase by about $275/mo).
That $500k mortgage that had a payment of $2400/mo. will now rise to $2,675/mo.

Soon many STATIC payment Var/Adj mortgages will hit a Trigger Rate (and may later reach the Trigger Point)
* TDCT, HSBC and RBC (and some other lenders) have STATIC payments for the Var/Adj mortgages. The rate has increased but the payment has not changed.
* The interest portion of the Var/Adj mortgage payment is going to equal the payment that has not changed. But did you know that the interest portion inside the mortgage payment has been growing and it may soon reach the “Trigger Rate”.
* The Trigger Rate is where the current payment reaches total interest since the last payment.
What happens at the Trigger Rate? The bank or credit union will contact you (via email, letter, and/or phone calls) and recommend you increase your mortgage payment. If you do not take action, the lender may allow you to accumulate extra interest for a little while until you reach the end of the current term or the “TRIGGER POINT”.

* The “Trigger Point” is where the growing mortgage balance exceeds the limits set out in the fine print signed at the lawyer’s office. Default insured and conventional mortgages have different trigger points. Please Book A Call to review your questions.

What should I do? What options do I have?

* Increase payments ($13 per $100k of mortgage per 0.25% increase) to stay ahead of the growing interest
* Lump sum pre-payment
* Refinance to fixed or floating rate and extend the amortization
* Lock into a fixed rate

* If you have not hit the Trigger Rate yet, then accumulate a reserve to use at that time to manage the higher payments.

Should I lock into a fixed rate?

The answer is different for everyone. If you believe this is a short-term blip or are planning to sell (in the next 12 – 18 mo) a short-term fixed rate term may offer some comfort. Please Book A Call to review your questions

If I am having trouble with all my payments should I sell and rent?

If you are staying in the same geographic area, you may find the cost to rent is increasing combined with an almost 0% vacancy rate that may make it difficult to find a place to rent. If you are moving to a smaller town, you will find many communities have a shortage of rental properties and the costs will not be as cheap as you might think. Reach out to me to explore what options there are to improve your cash flow and keep the property. Please Book A Call to review your options.

What if I have a mortgage and credit card, line of credit and other loans that are stressing my cash flow?

Put an action plan in place as soon as possible… You will have more options now than if interest rates trend higher, and housing prices fall, reducing the ability to refinance. Near limit credit cards or lines of credit and/or a missed payment will lower a credit profile eliminating some options. Debt is debt, whether it is a mortgage or a credit card. If you have equity in your home, then you may be able to lower the interest costs on that higher debt and reduce the TOTAL interest carry costs for all your debt including the mortgage. Paying less interest means putting money in your pocket. Please Book A Call to review your options.

What if I have a mortgage renewal coming up?

Don’t wait till the mortgage renewal letter arrives. In this volatile market, you might want to improve cash flow, lower interest costs, and have a cash reserve or access to equity in your assets. We can lock in a rate for you for up to 120 days. If rates continue to rise you are protected. If rates fall, we can secure the lower rate for you before closing. The best time to speak to us is about 6 months before your maturity date so we can discuss your current debts and if there is some debt management that will improve options for renewal. Please Book A Call to review your options.

What will happen to my approval?

Once approved (conditionally) lenders require the supporting documentation to unconditionally approve the application. Expect at this time there will be extra reviews of the documentation to go from conditional approval to unconditionally approved.

What will happen to my approval?

You get to keep the rate. However, the lender will need to use a higher stress test and you may qualify for less mortgage than you did before (i.e.reducing your buying power). The risk is that buyers may be looking to purchase based on the wrong numbers. Check that your pre-approved mortgage amount is correct under the new rate changes.

How much has the buying power been reduced?

Rate increases have reduced your buying power by 15% since January 2021. If you qualified for an $800,000 purchase, then with the same amount of down payment you now qualify for $680,000 - and that cut back is a big drop!

What is the stress test today?

The stress test is 5.25%, This qualifying rate is reviewed every December, with the next set for December 15th, 2022. Lenders are required to stress test the ability to pay with a rate that is 2.0% higher than the current rate of the mortgage. Currently, with some fixed and variable rates in the 4.5% range, the lender must stress test using a rate of 6.5% or higher. Unfortunately, these required stress test rules have reduced your borrowing power.

We are here to help.

If you would like to review your mortgage options, mid-term, or for a renewal or pre-approval, please book a time for us to review your options Book-a-review Please Book A Call to review your questions or if you want to get started please use our secure online application


Back to Main Blog Page

Blog Archives

users image

Hi, How can I help you?