Fixed Rates Have Moved Higher. What Did Waiting Cost?

Fixed Rates Have Moved Higher. What Did Waiting Cost?

A few weeks ago, I wrote about the risk of waiting for the “right” mortgage rate.

Since then, we have seen a real-world example of what that can mean.

Fixed mortgage rates have moved higher. Some people who delayed securing a rate because they expected pricing to improve are now being quoted more than they were a few weeks ago.

Not every lender, term or mortgage product has changed by the same amount. But the direction has been clear enough to make one point worth repeating:

Waiting for a lower rate is not a strategy unless you also understand what happens if rates move the other way.

Why fixed rates increased while the Bank of Canada held

The Bank of Canada held its policy rate at 2.25% on September 2.

That did not stop fixed mortgage rates from rising.

Variable-rate mortgages are more directly influenced by the Bank of Canada’s policy rate and lender prime rates. Fixed mortgage pricing is influenced much more by the bond market and lenders’ funding costs.

On September 2, the five-year Government of Canada benchmark bond yield was 3.42%. By September 10, it had reached 3.63%. It later reached 3.69% on September 23 and 24, and was still at 3.68% on September 28, according to Bank of Canada benchmark bond-yield data.

As those yields rose, lenders adjusted their pricing. Several major banks increased select fixed terms, and other lenders changed rates or reduced discretionary discounts.

That is why waiting for the next Bank of Canada announcement does not necessarily tell you what will happen to a fixed mortgage rate.

What can a small increase actually cost?

A difference of 0.20% can look small on a rate sheet.

On a $500,000 mortgage amortized over 25 years, a rate of 4.50% produces a monthly payment of approximately $2,767. At 4.70%, the payment is approximately $2,823.

That is about $56 more each month at the outset.

This is only an illustration. Actual rates and payments depend on the mortgage amount, amortization, term, product, property and borrower. But it shows why “I’ll wait and see” is still a financial decision.

Waiting may save money if rates fall.

It may cost money if they rise.

And sometimes the cost is not only the payment. A higher qualifying rate can also affect how much a buyer is able to borrow.

This is not a reason to panic or rush

I am not suggesting that everyone should immediately choose a fixed mortgage or accept the first rate they are offered.

A fixed rate may or may not be the right structure for you. A variable rate, a shorter term or a different combination of features may be more appropriate depending on your plans and comfort with uncertainty.

The recent increase is a reminder to make the decision deliberately.

If you are purchasing, refinancing or renewing, the conversation should include:

• When do you actually need the mortgage?
• Is a rate hold available, and how long will it remain valid?
• What payment is comfortable at today’s rate?
• How would your plan change if rates moved higher?
• What would you do if rates fell before closing or renewal?
• Which term, penalties and prepayment privileges fit your plans?

A rate hold can sometimes protect you if pricing rises while still leaving room to review better options if they become available. The details vary by lender and mortgage, so it is important to understand exactly what is being held and under what conditions.

The cost of waiting is now visible

People who waited through September because they expected fixed rates to improve are now looking at higher pricing in many cases.

That does not mean their decision was unreasonable. No one knows exactly where bond yields or mortgage rates will move next.

It does mean waiting was not free.

There are good reasons to delay a purchase or mortgage decision. Your income may be changing. You may need more time to build a down payment. The property may not be right. Your renewal may still be months away.

But if the only reason for waiting is the belief that rates will be lower later, it is worth putting numbers around both outcomes.

What happens if rates fall?

What happens if they do not?

That is the difference between hoping for a rate and having a mortgage strategy.

The bottom line

Fixed rates have moved higher, even though the Bank of Canada has not changed its policy rate.

The lesson is not that everyone should lock in.

The lesson is that timing the market is difficult, and waiting should be an informed decision rather than an assumption that tomorrow’s rate will be better.

If you have been holding off on a purchase, refinance or renewal decision, we can compare what moving forward now versus waiting would mean using your numbers.

I will not automatically tell you to lock in, and I will not automatically tell you to wait.

But I will help you understand the trade-off before the market makes the decision for you.

Book a mortgage strategy conversation.

Let’s review your mortgage solutions. It just makes “cents”!

Talk soon,

Ana

This article provides general information only. Mortgage rates, qualification requirements and lender policies vary by borrower, property and product.

Mortgages can be complicated; we are here to help you make “cents” of it.

We focus on Mortgage Solutions, Period!

To learn more, connect with Ana Cruz at 905.870.0513 or email ana@askanacruz.ca.