Pam is back with part 3 My Life Is Variable, So My Mortgage Will Be Too!  

Now we get into the weeds of what is happening in the world today.
And so much is happening. This is where it gets more interesting/confusing/uncertain all at once. Which is not a good state to be living in at all. We humans, we crave certainty.
And interest rates, they are certainly anything but certain right now.

Interest rates are being driven upward due to what? Inflation. Inflation is not 6.7% for many CDN’s.

Depending on how you live, inflation may well be much worse.

example;

Gas up 11.8% in a month, up 39.8% in 1 year.
Oil up 19.9% in a month, 61% in 1 year.
Food prices carry on upward along with the price of cars, trucks, and furniture if you can find any of these things to buy.

So you forget the new car, keep the old couch, and take a trip…
Restaurants, hotels and air travel, all up. Has anyone checked the prices on Airbnb lately? Some places have doubled since last year.
Services up 4.3% – a 20yr high.
Goods up 9.2% – a 40yr high
OK, all this inflation, it’s linked to what?
Mainly to the supply chain… not so much low rates.

1. Money has never been cheaper, but it’s never been harder to get.
2. Once you get the money, there isn’t much available to spend it on.

OK, the supply chain – the issues there are linked to what?

•   To 2020 & 2021 shutdown induced issues with labour & materials. Which sounds like old news because it is, it’s old news like the word ‘transitory’ is old news.
• Issues like fuel shortages and increased fuel costs, costs that were already skyrocketing prior to the Ukraine invasion. Also old news.
• Also screwing up the supply chain, our old friend that seems to get less attention than ever, Covid. Because much of the supply of well… everything… flows from China where there remains a zero tolerance approach to Covid, much like March of 2020.

So what does the Bank Of Canada say in the face of all this?
That they ‘have no interest rate policy, they have an inflation policy’ Yo Tiff, this is neither calming nor helpful.

But I get it you’re not in the calming business these days let’s cut Tiff and the gang some slack, because The BOC bunch, they’re a pretty intelligent crowd. And they’re people who care about the stability of our country via the stability of the economy, they’re not partisan politicians with unrelated agendas. I think?

But how’s The Bank of Canada jacking rates fixing that supply shortage? They aren’t.
And so a new Dodge, or GM will sell for $10,000 over list, because why? It’s in stock.

Windows, garage doors, appliances, will all sell at a premium – not because rates are low – because supply is low.
So on April 13 the rate increase of 0.50% affected who? Fundamentally very few.

Nobody with a fixed rate mortgage, nobody without a mortgage, nobody with a car loan, boat loan, RV loan, or a credit card balance.

No, it affected some of the people currently in variable rate mortgages, but not all. In other words, the rate hike did not impact many at all dollar for dollar.
And those who were affected, it wasn’t by much.
But it created uncertainty, and that uncertainty creates stress.

Many clients are seeing inflated payments if they are in a variable rate product
Many clients are looking at mortgage commitments issued pre April 13th 2022 for a completion date afterwards that don’t reflect the new prime rate which will apply at close.
And this means a false payment expectation. And for anyone with a commitment in hand dated April 12th or earlier, who also have a closing date of June 2 or later… there is some math to be done.

Closing after June 1,2022? Not good for the payment if you are in a variable and not good to not know what the real payment will be. And so I close this 3 part series with this advice.
Consider staying variable, or going variable if taking a new mortgage if you can afford some fluctuations in your payment and are okay with some uncertainty.

Have real conversations with your broker about penalties with fixed rate options, that’s the bigger bet… and the odds are not in your favour.