On July 13, the Bank of Canada announced a full 1% hike in its benchmark interest rate.

The key interest rate is now 4.7%. This is the largest single increase since 1998, and many adjustable-rate mortgage customers are questioning their decisions and trying to figure out what to do with their mortgages.

Adjustable rate mortgages have historically outperformed fixed rate mortgages over the long term. It’s easy to say this and feel confident when interest rates are low, but when interest rates start trending up, what then?

Customers choose adjustable rate mortgages for a variety of reasons. One of the main reasons I discuss with my clients is the potential penalty if they have to cancel (pay in full) their mortgage before the scheduled renewal date.

If you have an adjustable rate mortgage, your penalty is three months interest regardless of when you cancel your mortgage. With a fixed rate mortgage, you could potentially face thousands of dollars in penalties. For me this is an important consideration.

Most clients tell me this is a “forever” home and they have no intention of changing their mortgage during its term. But life can throw curveballs.

Some of the reasons people may need to foreclose on their mortgage are:

• Marriage or relationship ending

• Refinancing needs

• Relocation of work (without the need for a mortgage or if your current lender is not the right one)

• A stroke of luck such as an inheritance or a settlement

If you’re currently on an adjustable-rate mortgage and are panicking about how interest rates are going and how that will affect your bottom line, let’s go back and look at the math.

For every $100,000 of mortgage balance you carry, a 0.25 percent increase in the mortgage increases your payment by about $20.82. Even with this increase, you will most likely come out on top over time based on historical trends.

When I work with clients making their fixed or floating rate decisions, I do the calculations for them to show the difference in potential interest costs for one versus the other. Some customers are more concerned with stability and security, and for them this is the right decision.

I mentioned in a previous column that I talk to clients about the difference in payments between options, fixed versus floating, and if they choose floating, I still recommend putting the higher payment aside each month in case interest rates rise.

My own mortgage is variable, so I’ve had a few moments over the past few weeks where I’ve thought long and hard about the best move for me. I keep coming back to why I chose Variable in the first place and stay the course.

I don’t have a crystal ball, but I follow several economists. Several have commented that we are in for a bumpy few months as the government tries to rein in inflation, but we will see interest rates trend lower again towards the end of the year or early 2023.

If you are shopping from home and have worked with an agent or banker who qualified you to buy at a certain price point, it is important that you contact them before writing an offer to see how this latest increase affects your price point .

Until July 13, we were able to use the Bank of Canada’s reference rate to determine your mortgage amount if you chose a variable rate. With this recent rate hike, we now have to use the contract rate plus 2 percent. So in most cases, this will affect the maximum mortgage you qualify for.

The bottom line is, if you’re concerned about your interest rate, contact your mortgage lender.

This article was written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.