How does this affect my mortgage?

If you don’t have a mortgage yet and are thinking of making a purchase in the next few months, please see below.

If you have a variable rate mortgage or home equity lines of credit (HELOC’s), either your monthly payment will increase, or more of the payment will be allocated to the interest, instead of the principal, by $24 per $100,000 of your mortgage balance.  Static payment variable rate mortgages can increase once the Prime Rate rises to a certain extent, but the number of increases required to reach that level is different for every mortgage.  Your lender will communicate any increase and the effective payment date.

Fixed-rate mortgages are not tied to the prime rate and aren’t affected.

Recommendations:

Variable Rate Mortgages

It’s natural to be tempted to lock in an as soon as you see rates starting to climb but you may still save money by staying variable. It may take more rate hikes to narrow the gap between variable-rate mortgages and their fixed-rate counterparts depending on your rate discount, and available fixed rates at the time you decide to select between the two. However, fixed-rate mortgages can also come with a much larger penalty to break your mortgage.

Fixed-Rate Mortgages

Fixed rates are also rising, though not in response to this particular increase. If your mortgage is coming up for renewal in the next 6 months, look into renewing as early as possible.

Lines of Credit (HELOC)

If you owe a considerable amount to your HELOC, it may be a good time to consider converting that HELOC into a mortgage.

I am thinking about purchasing in the coming months. What should I do?

A pre-qualification is the best first step anytime you’re considering a new purchase, but especially in a rising rate environment. A rate hold can lock in your rate for up to 120 days, so you’re protected from rate increases during your search for the right property.

If you have any questions, discuss with an experienced Mortgage Consultant to weigh the options.