The Bank of Canada (BoC) has raised its benchmark interest rate five consecutive times this year – most recently increasing 0.75% on September 7th. And while these increases are coming after years of historically low rates, some borrowers may be feeling the increases more than others. Fortunately, you do have options, including refinancing your mortgage to access some of your home equity.

If you have a variable-rate mortgage or other variable loan such as a home equity line of credit (HELOC), these BoC increases will impact your payments because the banks base their prime rate on the BoC benchmark rate. 

Those with fixed-rate mortgages, on the other hand, are impacted by the bond rate and how their mortgage rate will look at renewal or when refinancing.

Still, a mortgage refinance may be worthwhile if you’re having cashflow issues and/or are carrying a large debt load at much higher interest rates than your mortgage, including credit cards, unsecured lines of credit and car loans.

Is there a penalty for refinancing my mortgage?

Breaking your current mortgage before the term is up and refinancing into a new mortgage means you’ll face a penalty. The penalty will vary based on your lender as well as the amount of time you have remaining on your current term. Of course, the longer the remaining term, the stiffer the fees for breaking your mortgage. 

Your mortgage agent can advise you on whether a refinance makes sense after looking at the payout penalty on your current mortgage and weighing it against the benefits of gaining access to your home’s equity now.

In many cases, refinancing right away is worthwhile. Other times, waiting a little longer so you’re closer to the end of your current mortgage term makes the most sense for your situation. Either way, you’ll know where you stand and can make future plans accordingly. 

Inflation has been playing a large role in rising interest rates. Inflation eased in July to 7.6% from 8.1% because of a drop in gasoline prices. Still, inflation excluding gasoline increased and data indicates a further broadening of price pressures, particularly in services. The BoC’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July. The target inflation rate the BoC likes to achieve is 2% and, given the outlook for inflation, the BoC believes that the policy interest rate will need to rise further. The next BoC rate meeting is October 26th. 

Have questions about whether now’s a good time for you to refinance your mortgage? Answers are a call or email away!