Mortgage & Wealth Strategies

How to Manage Your Variable Rate Mortgage in a Declining Rate Environment

November 4, 2024 | Posted by: Matt Broom-Hall

If you have a variable rate mortgage, the best thing you can do right now is - sit tight! You’re uniquely positioned to benefit as the Bank of Canada (BOC) continues its rate-cutting cycle. With rates expected to decline over the coming months, this period provides a valuable opportunity to reduce your monthly payments and save on interest. At the same time, it's essential to plan ahead for when rates stabilize and the cycle ends. This guide will walk you through key steps to maximize your savings and make the most of this rate environment.

1. Ride the Rate Down with Confidence

With a variable rate mortgage, you’ll see immediate benefits from every BOC rate cut. As analysts forecast, rates could drop by as much as 1.75%, potentially bringing your rate down from approximately 5.00% to around 3.25%. This reduction not only lowers your monthly payments but also results in significant interest savings over time.

If your mortgage is due for renewal within the next year or year and a half, keep an eye on your renewal timeline. When your lender sends rate quotes, it’s a great time to reach out so we can explore the best options available for your renewal.

2. Stay Engaged with Your Mortgage—Especially When Rates Bottom Out

When the BOC concludes its rate-cutting cycle, it’s crucial to consider locking into a fixed rate to secure stability for the remainder of your mortgage term. Here’s what that might look like:

• Option 1: Lock in a Fixed Rate with Your Current Lender
  If your current lender offers a competitive fixed rate, locking it in could provide stability for the rest of your term without the need to switch lenders.

• Option 2: Explore New Lender Options
  Alternatively, you may want to move to a new lender offering an attractive fixed rate. This can allow you to renew early and reset your term to secure the lowest available rate at that time.

The goal is to transition to a fixed rate at the optimal moment—when rates have bottomed out but before the BOC initiates rate hikes again.

3. When to Connect with Me for a Review

If your mortgage renewal is approaching within the next 12–18 months, connect with me once you receive rate quotes from your current lender (typically 60-90 days before your renewal date). We’ll review the offers and determine the best course of action based on the current market environment and your financial goals. This proactive approach ensures that you’re positioned to save, regardless of where rates head next.

How the Rate Ride Strategy Saves You Thousands

The Rate Ride Strategy enables you to take advantage of falling rates while retaining the flexibility to lock in when it’s most advantageous. Here’s a quick comparison to show the potential savings with this approach:

• With the Rate Ride Strategy: You enjoy reduced monthly payments during the rate-cutting period and lock in a fixed rate when rates are at their lowest. This approach leads to substantial interest savings compared to committing to a fixed rate upfront.

• Traditional Fixed-Rate Approach: Locking into a fixed rate now means paying higher monthly payments and potentially missing out on the cost savings that come with rate cuts.

The difference can be significant. By using the Rate Ride Strategy, many clients save thousands in interest over the term of their mortgage, compared to locking into a fixed rate now.

RateWatch+: Your Real-Time Monitoring System

Through my RateWatch+ system, I actively monitor the market on your behalf. When rates hit their lowest point, I’ll reach out to discuss the best fixed-rate options, so you don’t miss the opportunity to lock in long-term savings. RateWatch+ means I can offer proactive recommendations, ensuring that your mortgage strategy adapts to changing market conditions.

A Mortgage Strategy that Works for You

Managing a variable rate mortgage in a declining rate environment doesn’t mean going it alone. With my support and tools like RateWatch+, you can confidently navigate rate changes and maximize your savings. If you’re approaching your renewal, have questions about your current rate, or just want to explore your options, don’t hesitate to reach out. Together, we’ll develop a strategy that works for you, both now and in the future.

Insider Tip: Keep Your Payment the Same to Save Thousands

Want to accelerate your savings and pay off your mortgage faster with minimal impact on your finances? Here’s a powerful, yet simple strategy: keep your mortgage payment amount the same, even as the Bank of Canada cuts rates.

How It Works:
As rates decline, your variable mortgage payment will decrease, meaning you’ll naturally be paying less each month. But by choosing to keep your payments at the current level, the extra amount will automatically go toward your mortgage principal. This approach has two major benefits:

1. Significant Interest Savings: By paying down your principal faster, you’ll reduce the overall interest you pay over the life of the mortgage.

2. Faster Payoff: Each additional dollar applied to the principal shortens the term of your mortgage, allowing you to pay off your mortgage sooner.

Why This Strategy is Effective:
You’re already accustomed to your current mortgage payment, so keeping it the same won’t feel like an added expense. It’s a seamless way to reduce your mortgage balance faster without impacting your monthly budget.

How to Implement It:
This can usually be done easily through your lender’s online portal. Simply set your payment to remain at the current amount. Alternatively, you can contact your lender directly and request that any additional funds go toward the principal.

By taking this simple step, you’re positioning yourself to save thousands and shorten your mortgage term, all without feeling a financial pinch. This is just one more way the Rate Ride Strategy can help you achieve long-term financial success!

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