Mortgage Basics #Loan Types

Is fixed or variable rate the way to go in 2022?


Wondering what’s next for interest rates after the June 1st announcement? Not so sure if you should go fixed or variable in 2022? Today we sat down and chatted with Serge, Mortgage Development Manager, and had him answer some of the most commonly asked questions we’re seeing in the mortgage industry. Read on, and let us help you worry a little less!

Key Takeaways

  • nesto now has a lock rate period of 150 days, the longest in the industry at the moment.
  • With another big hike on the fixed rate and the overnight rate expected to increase again on July 13th, Serge is expecting a potential increase of 0.75% to 1% increase for variables, and 1.50% to 1,75% for fixed rate.
  • The stress-test rule states that, as of June 2022, all new mortgages must be stress-tested at the highest of 5.25% or contract rate + 2%.

Interview

Q: Is it smart to refinance now to switch to a fixed rate?

A: Considering there is nearly 2% difference between fixed and variable, there is little added value to early renew into a fixed rate right now compared to the historical low variable rate. Unless the main goal is to manage payment stress in this challenging time. Each borrower does not have the same risk tolerance.

Q: Nesto now offers a lock rate period of 150 days, is now time to lock in a fixed rate?

A: 150 days is currently the best rate freeze period for fixed and variable rate. As mentioned above, deciding to go fixed depends on your current mortgage if you have one and risk tolerance. Variable remains a very good option for many borrowers.

Q: The variable rate is lower than the fixed rate at the moment. With the current rate hikes, do you think variable rate is still the way to go?

A: Absolutely, even with the projection until the end of 2023. Variable along with a good strategy is the way to go

Q: How high will rates go in 2022? Will rates stop rising in the near future?

A: With another recent big hike in fixed rate and the overnight rate expected to increase again on July 13th, we are expecting a potential increase of 0.75% to 1% increase for variables and 1.50% to 1,75% for fixed rate. Impossible to predict with certainty but borrowers need to stay informed as changes could arise rapidly.

Q: With rates on the rise, does this affect how much house I can afford? If so, in what way?

A: Yes absolutely! First of all, the budget is crucial, borrowers need to be diligent and what they can and cannot afford. Secondly the stress-test used to qualify borrowers is now different depending if they decide for fixed or variable rate. The stress-test rule states that, as of June 2022, all new mortgages must be stress-tested at the highest of 5.25% or contract rate + 2%. Consequently we see fixed mortgages being stress-tested at 6.34%+ and variable mortgages at 5.25%. Meaning that in some cases it is easier to qualify for a variable rate mortgage than a fixed rate mortgage. Needless to say that in these challenging times budgeting is key for every household.

Q: How will these interest rates impact consumer debt levels and spending?

A: On average a 0.25% increase represents approximately 13$ per hundred thousand mortgaged. For a 500 000,00$, a 1% increase could mean up to 260$ per month in payment increase. Factor in other liabilities impacted by lenders prime rate, the impact will vary from one borrower to another but ultimately reduce cash flow.

Q: What do you foresee for the July 13 interest rate hike? (Many are saying a potential .75% hike) How will this shift the market?

A: Many are projecting a 1% increase by the end of 2022 or 2023. We believe that the increase is representative of the current market but as for July 13th the increase should be between 0.50 to 075%. Again, extremely hard to predict and projection are changing almost daily

Q: Best advice to any homeowner that is currently worried about the impact and inability to afford their mortgage come the end of summer?

A: Budget and seek advice for a mortgage / financial expert. Rates are one big component of the overall strategy but the strategy itself is your best ally to make sure you and your family remain in a good position to sustain the upcoming increases.

If you’re ready to find your low rate and lock it in for 150 days, speak to a nesto mortgage expert today!

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