Column: What to do with rising interest rates

Kelowna columnists say a big concern is what type of interest rate is for you

We see a lot about future changes from the Bank of Canada regarding tightening lending rules, Canadian indebtedness and interest rates.

We have all heard of the burgeoning debt loads, the reason for the tighter lending rules. Our main concern, as mortgage professionals, is to guide you, the home owner and potential first time buyer about the pros and cons of mortgage interest rates as to how they apply for each individual client.

One of the major dilemmas facing those who are first time home buyers, upgrading to a larger home, facing future renewals, renovation and consolidation mortgages is what type of interest rate is for you.

There are varying types of mortgage interest rates in financial land. Variable rates- those with no set interest rate for a specific period of time; closed mortgage rates – guaranteed interest rates for set period of time; open mortgages with either variable interest rates or fixed rates from six month to one year; credit lines – open revolving credit up to 65 per cent of the value of your home.

Over the past several years it has been variable rates as the borrowers’ choice but, due to recent interest rate hikes, the spread between variable interest rates (prime plus or minus the financial institution’s prime rate of 3.20 per cent) and closed, fixed rates may be approximately 60 to 80 basis points. For example: a variable rate mortgage can be as low as Prime – .80 per cent (2.40 per cent) and a five year fixed as low 3.04 per cent. You can also opt for a 10 year closed mortgage rates in the 4.09 per cent area but some feel that may be high compared to the variable rate mortgage.

As in investment, we must rate the risk to reward in choosing a mortgage interest rate. From what we read, and our experience in mortgage lending, interest rates have risen and, if you are in a closed variable rate or credit line (both on fluctuating interest rates based on financial institutions’ prime rates), you will have to carefully watch that prime rate.

Each individual lending situation carries its own characteristics so each application a mortgage professional takes has to be viewed with the borrower’s best interests in mind. For example: 1.) what are your risks to interest rate fluctuations?; 2.) what are your plans for the future?

That is, are you inheriting funds; expecting a large sum of money; planning on moving in the near future and many different scenarios. There are many other scenarios that we have not discussed here but, should you have any questions regarding your future renewal, home purchase, renovation, investment or refinancing please call us and we will gladly sit down with you to discuss your options.

Of Prime Interest is a collaboration of mortgage professionals: Darwyn Sloat: Phone: 250-718-4117 or email at: dsloat@creativemortgage.ca; Trish Balaberde: Phone: 250-470-8324 or email at: trishb@creativemortgage.ca; Christine Hawkins: Phone: 250-826-2001 or email at: christine@creativemortgage.ca.

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