Rates are rising...Is the sky falling?
 July 13 2022     Posted by Mary Poburan

 So here we are July 13, 2022 and today's announcement brings our Prime lending rate to 4.7% . We knew rates were going up and all expectations were pointing to a .75 basis point hike but as evidenced in the last 2 years, life is unpredictable. The last 18 year history of Prime is an interesting one. The last time Prime was this high was in April 2008 at a rate of 4.75, prior to that reaching a peak of 6.25% in July 2007( another crazy period of time when the Real estate buying frenzy was out of control.) In other words in roughly 9 months, prime fell 1.5% I am not an economist and don't pretend to see into the future, but 'This too shall pass'. Although the pandemic changed our world, it also created a perect storm for a buying frenzy with many people actually having more money to spend than ever. The 'I deserve it' mentality was in full force. I'm not here to judge but to simply point out that we had a lot to do with what is happening today. When spending becomes out of control, the balance of our economy shifts. Add in variables like a pandemic, a war and supply chain issues and the result is what we are experiencing today. 

For anyone in a variable rate mortgage,  my advice stays the same as I have always given;stay the course. When choosing a variable rate product the risks are clear but so are the benefits. If you had a stomach for it then, when rates were low, you must certainly keep the faith now as locking in at a rate of over 5% now will wipe out any benefit you have already seen. Instead, focus on increasing payments to acclerate repayment and save interest costs.Try to digest the fact that the low rates of the past were unrealistic and unsustainable. Most lenders allow you to increase payment by 15-20% year over year, so taking these steps will help soften the blow of future, almost certain, further increases. Its a scary time but again, 'This too shall pass' . It's a troubling reality for new buyers entering the market  as not only will their homes consume more of their budget, but they will also qualify for much less given the qualifying rates are now quickly exceeding the benchmark of 5.25% It is also very dissappointing for those renewing their mortgages out of a rock bottom rate of 1.79% but we have no control over this move. Initially the government's prescribed qualifying rate seemed outrageous but now it clearly makes sense. The future will be interesting. People will always be buying and selling and our eceonomy will improve and deteriorate in cycles. When making decisions, always remember to focus on the long game. No one knows where this will land but all we can do is hold on and maybe stop relying so much on credit and focus on the lessons our parents tried to teach us. Live within your means, save for a rainy day and don't try to keep up with the Jones'. I promise you, their debt payments are even higher now too!

Feel free to reach out if you have questions. I can't promise a miracle fix but talking things through often brings clarity.