Life Is Variable!

Michael Hallett • May 24, 2022

Has life ever handed you a fixed timeline? Is each day, each week, each month, each year always the same? Most would say No. How often has life presented you with challenging changes? Often enough to say that life varies from time to time. Take for example Covid-19 in March 2020 and the years that followed, we all had to adjust and make changes. 


Because life is variable, your mortgage should be too!


If you’ve gotten this far but don’t want to or feel the need to continue reading, honestly, there is no need. The following 1,036 words are summarized by the title of this article, 3 simple words to live by.


The Bank of Canada’s next rate announcement comes *June 1st. We are expecting to see an increase in prime of ~0.50% (or 50 basis points). Having said that, we really don’t know what is going to happen until it happens. Sometimes there is a clear indication by the economists of the rate increase, but half the time there are different messages across the board.


*Remaining Bank of Canada rate announcement scheduled for 2022

  • June 1
  • July 13
  • September 7
  • October 26
  • December 7


The schedule works out to 8 times a year, approximately every 45 days.


What does an increase 0.50% really mean? What does it mean to you? If the interest rate rises 0.50% your payment will increase $26/month for every $100,000 you have borrowed. How will this impact your life? Your budget? Your cashflow?


Fixed vs Variable, it’s always been a hot topic and will remain for the foreseeable future. For the past 2 years 70% of all mortgage consumers have opted for the lowest interest rate which is a variable rate mortgage product. This provides lower monthly payment and increased mortgage flexibility. Most lenders are shocked that borrowers are opting to live a variable life, not fixed.


This is where the thought process sometimes shifts, and borrowers start thinking about what rate they could have had versus what we will end up with. Electing to choose a variable over a fixed mortgage was only half the decision. By opting for a variable rate mortgage, you will not be part of the overwhelming statistic that 65% of all fixed rate mortgage will be terminated within the first 33 months. The termination will then trigger a penalty that is 9 times greater than variable. 2 of 3 people/families is not a small consideration. Any savings that may have been created has been completely obliterated by the penalty be charged. I recently had a client that had to opt out of their $500,000 fixed mortgage, the penalty triggered was $21,000. Had it been a variable they would have saved over $18,000.


It's never ONLY about the interest rate. There is a much bigger picture to consider.


Most mortgage consumers either opt for a fixed or variable rate mortgage (VRM) product. Some of you might not know, there is a third type of mortgage known as adjustable-rate mortgage (ARM). It usually gets referred to as variable, but it’s not.


ARM – The payments are automatically adjusted according to the prime lending rate set by the lender. For these lenders, you simply must ride the wave. The great benefit is you do not need to worry about not covering the interest payment. 


VRM – The payment is static, like a fixed payment. Any adjustments are made manually. This mortgage product is great because you will not see the payments change when the prime lending increases. However, in a fast-rising rate environment where prime is increasing the consumer needs to make sure interest is being covered with each payment, this is called trigger rate. If surpassed, a variable rate borrower needs to increase their payment to be 100% sure the interest each month is covered. 


If you are unsure which of the above mortgage product you have, please contact me for verification.


Most lenders and mortgages brokers did not expect this rate environment, no one forecasted inflation to skyrocket like it has, primarily because of the supply chain issues and the war in Ukraine. There has been some re-assurance from the Bank of Canada (BoC) to provide some comfortable for VRM and ARM consumers. The BoC has stated that the outer maximum range for PRIME is 5.25%. This is a mark they have modelled to control inflation. Remember, your variable rate will maintain the discount off PRIME for the entire duration of the term. If PRIME gets to 5.25% and your discount is 1.0%, your principal and interest payment is based on 4.25%. 


My variable rate mortgages will remain as variable rate, I will NOT be switching to a fixed term. Not because of the rate, but more likely because I will need to re-finance my mortgage to act on an opportunity. Real estate is a long game with ups and downs, we’ve all gotten too used to low rates. Let’s not forget the 25 yr average is 5%+. By locking in, you would be self-imposing a rate increase that may not even happen and locking pricing profits for the lender. Once inflation is under control, the PRIME lending rate will decrease. 


It's ultimately a decision you must make, risk and reward or risk falling into the fixed penalty trap. I strongly urge you to consider sticking with your variable mortgage or if you are transitioning to a new mortgage consider variable over fixed.


Please reach out to me if you want to discuss further – 604-616-2266 or michael@hallettmortgage.com.  


Will higher rates slow or cool down the market? Yes, but not for long.


I’ve seen some recent reports and posts that the housing prices coming down. This means the housing market is cool off, which is greater for buyers. I know there are a lot of people trying to time the bottom of the market. In my opinion, trying to time the market is virtually impossible. Many others are trying the same tactic. Once the ‘bottom’ strikes everybody will jump back in at the same time and we will once again be back to multiple offers over the asking price. 


If you are ready to buy, then buy!


I believe the increase in interest rates will (briefly) stall the market in BC, but not drastically change the pricing. The root of the problem is supply and demand. There are simply not enough sellers in the market. If there are sellers, they all want to buy before placing their home on the market, which is understandable. It’s a vicious cycle. I do believe the issue are the cities inability to process building permits in a timely manner. I appreciate the process of checks and balances but there is simply not enough turnover. Now the builders are also dealing with supply chain issues which further stalls homes coming to the market.


If you have any further questions, please do not hesitate to contact me.

SHARE

MY INSTAGRAM

MICHAEL HALLETT
Mortgage Broker

LET'S TALK
By Michael Hallett July 16, 2025
Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.
By Michael Hallett July 9, 2025
Let’s say you have a home that you’ve outgrown; it’s time to make a move to something better suited to your needs and lifestyle. You have no desire to keep two properties, so selling your existing home and moving into something new (to you) is the best idea. Ideally, when planning out how that looks, most people want to take possession of the new house before moving out of the old one. Not only does this make moving your stuff more manageable, but it also allows you to make the new home a little more “you” by painting or completing some minor renovations before moving in. But what if you need the money from the sale of your existing home to come up with the downpayment for your next home? This situation is where bridge financing comes in. Bridge financing allows you to bridge the financial gap between the firm sale of your current home and the purchase of your new home. Bridge financing allows you to access some of the equity in your existing property and use it for the downpayment on the property you are buying. So now let’s also say that it’s a very competitive housing market where you’re looking to buy. Chances are you’ll want to make the best offer you can and include a significant deposit. If you don’t have immediate access to the cash in your bank account, but you do have equity in your home, a deposit loan allows you to make a very strong offer when negotiating the terms of purchasing your new home. Now, to secure bridge financing and/or a deposit loan, you must have a firm sale on your existing home. If you don’t have a firm sale on your home, you won’t get the bridge financing or deposit loan because there is no concrete way for a lender to calculate how much equity you have available. A firm sale is the key to securing bridge financing and a deposit loan. So if you’d like to know more about bridge financing, deposit loans, or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you.