The Bank of Canada today announced that it will make no change to the target overnight rate, which currently stands at 0.25%. As well as keeping the rate unchanged, the Bank signalled that a rate hike will occur in “the middle quarters of 2022”, meaning as early as April. The Bank was mostly positive, citing strong job gains that have put Canada’s employment rate back to pre-pandemic levels and the global economic recovery. The Bank is still saying that inflation is a temporary issue that will likely start to ease in the second half of 2022.
Rising rates in 2022 and what this means for you
In general, positive economic news is not great news for mortgage rates, since it makes them rise. If the recovery continues as expected, you should expect multiple Bank of Canada rate hikes in the last three quarters of 2022, starting in April, May or June. Anyone with a variable rate should recalculate their mortgage payment using various increased rate scenarios to ensure they are ready for rate hikes. Basically, you should simulate a mortgage stress test for yourself. If your finances are tight, consider locking into a fixed rate today. You can always contact one of our agents at CanWise who can go through different mortgage scenarios with you to make sure that you’re ready for rising rates.
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Fixed rate or variable rate - what to choose?
While a fixed rate mortgage is the right choice for anyone risk-averse, households that can handle more risk should still consider a variable rate mortgage. Even in this rising rate environment, there would need to be four to six Bank of Canada rate hikes before today’s variable rate would be equal to today’s fixed rate. To help you make the decision of a fixed rate versus a variable rate, you can read more about the pros and cons of fixed versus variable mortgage rates on our site.