An Insight to the Recent Rate Increase

Walk past any bank and the posted rates seem to reflect business as usual. However, we all know that the banks usually offer customers a “discounted” or “special” rate and it is these rates that we need to keep our eye on. According to TD Canada Trust, since June these “special” rates have increased 70 bases points (3.1% to 3.8% for a 5 year term). Regardless of the financial institution,  these increases are being seen across the board.

Let’s do a little math with the only changing variable being the interest rate: In early June locking a $500,000 mortgage would have made your monthly mortgage payment $2,392. Today, your monthly payment would be $2,576. That is almost a $200 difference! Over a 5-year term that is an addition $16,500 (approx) paid in interest!

It is obvious that rising interest rates matter. So what impact will this have on the market in the coming months? From my perspective here are a few answers.

Typically the announcement of an interest rate hike encourages Buyers to jump into the market at their lower pre-approved rates.
More potential home buyer’s will decide to purchase sooner rather than later- fearing further rate increases.
Once the pre-approved rates have expired and particularly if interest rates continue to climb, we may see a slower more balanced Toronto market.
Home owners might make the decision to hold on to their houses a little longer. If the timing is appropriate, they might decide to blending their mortgages in an attempt to hold a lower interest rate for another 5 year term.

Click here for a great document prepared by TD Economics that fully explains the increase and answers common questions.

Thank-you to Ramy Ibrahim at TD Canada Trust for sharing this article.