How Does a Prime Rate Change Affect My Mortgage Payments?
Do you have an adjustable rate mortgage? If so, you may have been paying attention to the recent prime rate change. The Bank of Canada has announced an increase to the overnight rate, which has resulted in a RMG prime rate increase as of July 13, 2023 to 7.20%.
An adjustable rate mortgages is a home loan with as variable rate, which is based on the RMG prime rate. As such, your rate will change when the prime rate does. While many homeowners will remain comfortable with their adjustable rate mortgage, others may wish to lock-in to a fixed rate term to avoid further potential rate fluctuations.
Want to lock-in to a fixed rate mortgage?
If you’re anxious about the impact of the rate increase on your mortgage and would prefer the security of a fixed-rate term – where your payments are guaranteed not to change – it’s easy to convert your mortgage. In fact, you can lock-in to a fixed rate mortgage term of equal or greater length at any time and at no cost.
How it works
When you lock-in to a new mortgage, you start a new term with a new rate. You can choose a term that works for you – you’ll get a new maturity date and some of the conditions of your mortgage may change. It’s a good idea to review all the details of your new mortgage so you’re fully informed before you lock-in.
To request an offer for the best available 5-year fixed rate, log into MyRMG and select “Lock-in to a Fixed Rate”
Conversions/Lock Ins FAQ
How much does it cost to lock in my mortgage?
It doesn’t cost anything to lock in your mortgage. If you have an adjustable rate mortgage right now and you lock into a fixed rate term of equal or greater length, there’s no cost to you.
Can I keep my current variable rate if I lock in?
When you lock in your mortgage, you start a new term, with a new interest rate. What does this mean? Your current adjustable rate mortgage term, including your variable interest rate, will come to an end on the date of your lock in and your new fixed interest rate will be determined based on the fixed rates available for the term length you choose at the time you to lock in.
Why are fixed rates higher than variable?
A fixed interest rate gives you the peace of mind of knowing you will have a consistent payment amount throughout your term – and this security typically comes with a higher interest rate. A variable rate can often be lower than fixed rates, but it comes with a risk of fluctuations in your rate, and consequently your payment amount, over the length of the term. Whether or not the risk of payment fluctuation is worth the potential for lower payments is up to you as a homeowner; there is no right or wrong choice.
If I decide that an adjustable rate term is better for me, can I switch back later?
In short, yes, you can move back into an adjustable rate mortgage should you choose to later on, but you may have to pay a penalty to do so before maturity (this is called an early renewal). When you move from an adjustable rate mortgage to a fixed rate mortgage before your maturity date, it’s called a lock in (or conversion). A penalty will not be charged when you lock in, but it will be charged when you early renew.
Will I still have my same Privilege Payment options?
Yes! The same privilege payment options are the available for homeowners in a fixed rate term as for those in an adjustable rate term.
Will my maturity date remain the same if I lock in?
When you lock in your mortgage, your current term ends and you start a new fixed rate term. This new term will come with its own maturity date, determined by the term length you choose.
Will the prepayment penalty structure change if I lock in to a fixed term?
Yes, the penalty structure may change if you lock into a fixed rate term. Before signing an offer to lock in your mortgage, it’s important to be fully informed. We recommend reviewing the terms and conditions of the new term, including the prepayment penalty information.
Should I lock in now? How much do variable rates really change?
The decision to lock in your mortgage is one that only you can make. To figure out if you should lock in, you need to determine what level of rate fluctuation you can tolerate – both financially and emotionally. The prime rate changes in response to changes in the Bank of Canada’s key lending rate. Although you may hear speculations about upcoming rate changes in the news, we can’t know for sure when the rate will in fact change, or by how much, until it happens. Historically, the prime rate increases or decreases by 0.25 - 0.50%.