Quickie thoughts on the recent Bank of Canada increase. What questions do you have?

As you know, the Bank of Canada raised rates today by 100bps.

Which lead to a very interesting Twitter thread:

We knew a rate hike was coming but perhaps not to this extent. Of course, this means variable mortgages are going up which is yet another increase.

Ouch. This is going to hurt.

I had a couple quick and dirty questions, which I posed to Allison Van Rooijen, VP of Consumer Credit at Meridian.

The common response to increased prices or rates is to revisit your budget. Wages haven't gone up, people have reassessed their budget. What else can they do?

Understanding the inflows and outflows of your budget is a sound practice to follow on an ongoing basis and not a ‘one and done’ activity. If a budget has been recently reviewed and your discretionary spending has been reined in appropriately, borrowers should be looking at their debt levels to see if there are additional opportunities to pay down or consolidate their debts, starting with debt items at higher rates like mortgage payments, lines of credit and credit cards.

Proactively working with a financial advisor for a second opinion may uncover other options, like changing payment frequency or payment amounts. A bi-weekly payment that aligns with your payroll deposits in your bank account may be easier to manage than a lump sum monthly payment.

The first instinct for owners of variable rate mortgages to lock into a fixed rate. What should they consider before locking down?

Check in with your lender to see if your monthly payment is actually changing as a result of increased rates, or simply directing less of your payment to principal paydown. Many variable rate mortgages do not see a change in the actual monthly payment until a trigger point, annual review date, or renewal.

Converting to a fixed rate mortgage can help with cash flow if a borrower is more sensitive to monthly payment changes. A lender or broker can help you determine an appropriate term length and understand any penalties or alternate structures that may support your individual circumstance.

What else do you want to know? Let me know in the comments.