The Bank of Canada announced today that it will be increasing the key overnight rate by 50 basis points from 3.75% to 4.25%. This was widely expected, though some prominent experts had been predicting a potential smaller increase of 25 basis points. Although the Bank continues to be very concerned about inflation, it also signalled that it may not raise rates at its next announcement in January.
WATCH: Analysis by mortgage expert, James Laird
Could the end be in sight?
There was a notable shift in the tone of the latest Bank of Canada announcement regarding future rate hikes. Previous announcements, such as the last one in October, had made it clear that further hikes were necessary with language like, "the Governing Council expects that the policy interest rate will need to rise further."
In a marked contrast, today's announcement says that the "Governing Council will be considering whether the policy interest rate needs to rise further." This could well mean that the Bank will choose not to raise rates at the next announcement, scheduled for January 25, 2023.
What this means for you
If you have a variable-rate mortgage with a variable payment, you'll see an immediate impact as your monthly mortgage payments rise in tandem with the key overnight rate. If you have a variable-rate mortgage with a fixed payment, you'll find yourself moving closer to or even beyond your trigger rate (the point at which your fixed payment no longer covers the interest costs of your mortgage).
If you have a fixed-rate mortgage, you won't be affected by this announcement until your mortgage is up for renewal. Given the possibility that rate hikes may be coming to an end, there is a chance that fixed mortgage rates could eventually drop and home prices will stabilize.
If you're currently shopping for a home, be sure to check out the best mortgage rates in Canada and get a pre-approval to lock in today's fixed rates for up to 120 days. In the event that fixed rates go down, you'll still have access to the lowest rate currently on the market.
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Changes to your mortgage payment
If you have a variable-rate mortgage or a home equity line of credit (HELOC), you'll see an almost immediate increase to your monthly mortgage payment. Here's a sample calculation:
According to Ratehub.ca's mortgage payment calculator, if you put a 10% down payment on a $644,000 home (average home price in Canada in October 2022 was $644,643 according to CREA) with a 5-year variable rate of 4.75% amortized over 25 years (total mortgage amount of: $597,568), you have a monthly mortgage payment of $3,391.
With today’s 50-basis point rate increase, your variable mortgage rate will increase to 5.25% and your monthly payment will increase to $3,561.
This means that you'll pay $170 more per month or $2,040 per year on your mortgage payments.
The bottom line
No matter what your mortgage situation is, if you want expert advice on how to navigate today's rising rate environment, feel free to contact one of our mortgage brokers. They can go through different mortgage scenarios and offer personalized advice at no cost to you.