Mortgage Rates Are Rising: How Real Estate Investors Should Prepare

Mortgage Rates Are Rising: How Real Estate Investors Should Prepare Mortgage rates are moving higher again. For real estate investors, that raises an obvious question: What should you actually do about it? In today's episode of the Canadian Real Estate Investing Morning Show, Wayne and Gabby are joined by investor-focused mortgage broker Keaton Kirkwood of Kirkwood & Brennan Mortgage Group to break down what is happening with rates, why fixed mortgage rates are already reacting, how variable-rate borrowers should think about the next several months, and how investors can protect their portfolios before higher borrowing costs become a problem. The biggest message: You cannot control interest rates. But you can control how prepared your portfolio is for them. Why Rates Are Moving Keaton explains that there are two major forces investors need to understand: Bond yields and The Bank of Canada overnight rate Bond yields react in real time to market expectations, global capital flows and inflation. Fixed mortgage rates are heavily influenced by bond yields. The Bank of Canada overnight rate, on the other hand, directly affects prime-based borrowing products such as variable-rate mortgages and HELOCs. Keaton points out that bond yields have already moved higher. That means fixed mortgage rates can increase even before the Bank of Canada changes its overnight rate. Why the U.S. Matters The conversation also covers what happens when the United States raises rates. Canada does not operate in isolation. If other major economies increase rates while Canada does not, that can put downward pressure on the Canadian dollar. A weaker dollar can make imported goods more expensive. That can contribute to inflation. Eventually, Canada may be forced to respond. Keaton compares global economies to a conga line. The largest economies are closer to the front. Canada is somewhere in the middle. We do not control the direction of the entire global financial system. This Is Not the First Time Wayne points out that investors have seen versions of this before.     Inflation. Rising rates. Higher mortgage payments. Financing stress. The causes may change. The pattern does not. That is why the goal should never be to perfectly predict rates. The goal is to build a portfolio that can survive when rates move against you. Higher Oil Prices Could Help Alberta There is one interesting wrinkle. The current inflation pressure being discussed is connected partly to geopolitical conflict and rising energy prices. Higher oil and gas prices are painful for consumers. But Alberta can sometimes benefit economically from stronger energy prices. That may support: Employment Investment Migration Housing demand Property values Keaton cautions that the effect is not equally positive for everybody. A drilling contractor may benefit directly. A teacher or accountant may not. Still, Alberta can sometimes perform relatively well during periods when global energy prices rise. What Investors Should Do Now Wayne asks the question most investors actually care about: Should you pause? Wait? Switch mortgage products? Rush to refinance? Keaton's answer: It depends on when you are exposed to higher rates. If you are in a variable mortgage, you should be paying attention now. If you have a fixed mortgage renewing within approximately 18 months, you should be paying attention. If you locked into a relatively high fixed rate previously, it may also be worth reviewing whether restructuring creates an advantage. That does NOT automatically mean you should refinance. It means you should investigate. Keaton's Four Pillars When deciding whether to restructure a mortgage, Keaton recommends evaluating four things: Cost Qualifying power Risk Tax efficiency If a change improves three or four of those areas, it may be worth considering. If the only benefit is saving $50 per month but it costs $15,000 to make the change, that may not make sense. The decision needs to improve the overall portfolio. Know Your Break-Even Interest Rate One of the most important pieces of advice from today's episode: Know the interest rate at which each property stops cash flowing. Then calculate the same number for your entire portfolio. For example: What happens if rates increase 0.25%? How much does that reduce monthly cash flow? What about another 0.25%? And another? At what point does the property become cash-flow neutral? At what point does the entire portfolio require money from your pocket? Investors should know these numbers before the rate increase arrives. Stress-Test the Portfolio Keaton recommends going even further. Calculate the impact of each quarter-point rate increase. If every 0.25% increase costs your portfolio $300 per month, you can quickly determine how much room you have. Maybe your portfolio can absorb: Three increases. Five increases. Seven increases. The specific number matters less than knowing it. Uncertainty creates fear. Knowing the numbers creates a plan. Cash Flow Is Your Protection Wayne comes back to the 5% Rule™. The reason he places so much emphasis on buying strong cash-flowing properties is not because high cash flow simply feels good. Cash flow creates safety. If interest rates rise: You have room. If rents temporarily fall: You have room. If expenses increase: You have room. If vacancy rises: You have room. The investor who bought a property with almost no cash-flow cushion can be wiped out much faster. The 5% Rule™ Wayne created the 5% Rule as a simple minimum cash-flow test for Canadian real estate investors. Its purpose is to ensure investors are not buying properties with such thin margins that one market change destroys the investment. Search: The 5% Rule by Wayne Hillier on Amazon. Longer Amortizations Can Reduce Risk Keaton also explains why he often prefers longer amortizations on investment properties. Longer amortization means: Lower mortgage payments. Higher cash flow. Greater ability to absorb rate increases. More liquidity. That does not mean you can never pay the mortgage down faster. You can use prepayment privileges if you want to accelerate the mortgage later. But starting with a longer amortization gives the investor more flexibility. Don't Rush to Pay Off Tax-Deductible Debt Another important point: Not all debt costs the same. Interest on qualifying investment debt may be tax deductible. Interest on your principal residence generally is not. That means a 5% tax-deductible investment mortgage may effectively cost less after tax than a 4% non-deductible home mortgage. Keaton's view is that investors should generally prioritize paying down more expensive non-deductible debt before aggressively eliminating tax-deductible investment debt. Always confirm the tax treatment with your accountant. Variable vs Adjustable Rate Mortgages Keaton also explains an important distinction. An adjustable-rate mortgage changes the payment as rates move. A variable-rate mortgage with a fixed payment keeps the payment the same, while the amount going toward principal changes. For an investor concerned primarily with cash flow, a fixed-payment variable structure can provide more predictability. The specific product still needs to fit the investor's goals. What About Leverage? One listener asks how to hedge rising variable rates when heavily leveraged. Keaton explains that loan-to-value is only part of the picture. For cash flow, amortization can be more important. An investor could have relatively low leverage but a very short amortization and therefore extremely high monthly payments. That investor may actually be more exposed to rate pressure than someone with more leverage and much lower payments. The real question is: How much cash flow does the debt structure require every month? Liquidity Matters Keaton also recommends maintaining liquidity. Cash reserves can make an enormous difference during periods of rising rates. An extra $20,000 or $30,000 in accessible reserves can give an investor time to work through: Higher payments Vacancies Repairs Refinancing Renewal timing Selling an underperforming property Liquidity gives you options. Should You Sell a Weak Property? Keaton gives an example. Imagine your portfolio is healthy until rates reach 6%. But one property is already barely cash-flow neutral today. That property may deserve a closer look. If rates rise further, it could become significantly negative. The question becomes: Does that asset have another compelling reason to hold it? Or would selling it now strengthen the entire portfolio? Asset management means evaluating each property individually, not blindly holding everything forever. Don't Let Rates Stop You From Buying The goal of today's conversation is NOT: "Rates are going up, so stop investing." It is: Understand the risk. Prepare for it. Then continue executing the plan. Higher rates can change the numbers. They can change which properties make sense. They can change financing strategies. But they do not automatically eliminate good real estate opportunities. Remote Property Management Course – 50% Off This Week Wayne and Gabby also discuss the response to Gabby's Remote Property Management Course. The eight-module course teaches the systems Wayne and Gabby use to manage their own rental portfolio remotely without personally attending every property issue. This week, the course is available for: 50% off Use code: 50OFF at: www.reimasters.ca About Keaton Kirkwood Keaton Kirkwood is an investor-focused mortgage broker with Kirkwood & Brennan Mortgage Group. He works with Canadian real estate investors on financing structures designed to protect cash flow, preserve future borrowing power and avoid mortgage decisions that make the next acquisition harder. www.kbmortgages.ca [email protected] REI Masters Mentorship Work directly with Wayne and Gabby on acquisitions, financing, market selection, joint ventures, property management and building a profitable Canadian real estate portfolio. www.reimasters.ca Watch the Morning Show Join Wayne and Gabby every weekday morning at 7:00 AM Mountain Time on YouTube. Follow Wayne Hillier – Real Estate Investing Coach on YouTube. Questions: [email protected] Upcoming Event REI Masters Annual Retreat Edmonton, Alberta October 17–18, 2026 www.reimasters.ca Sponsors Calvin Realty – Edmonton Investor-Focused Realtor Team www.calvinrealty.ca Finngo Bookkeeping & Tax Specialized bookkeeping and tax services for Canadian real estate investors. www.finngo.com/rei Kirkwood & Brennan Mortgage Group Investor-focused mortgage planning for Canadian real estate investors. www.kbmortgages.ca [email protected]