Jon Jilani, Bilingual Content Marketing Strategist
As expected, the Bank of Canada announced today that it will be raising the key overnight rate by 25 basis points, from 0.25% to 0.50%. The Bank noted strong economic growth and the positive state of the labour market, as well as a general feeling that COVID-19 is behind us for the moment. The biggest concern for the Bank is the high inflation rate, which came in at 5.1% in January. However, the Bank feels confident that inflation can be brought back under control using further rate hikes in the coming months (among other economic measures).
What this means for you
By the end of this week, all banks and mortgage lenders will have increased their prime lending rates in line with the Bank of Canada's 25 basis point rate hike. As soon as this happens, if you have a variable-rate mortgage or home equity line of credit (HELOC), you'll be affected right away (example below). You should also be budgeting for further rate increases throughout 2022.
If you have a fixed-rate mortgage, you won't be affected until your renewal date, when you can expect higher rates. If you're currently shopping for a home, be sure to look at the best mortgage rates in Canada and make sure you get pre-approved in order to hold today's fixed rates for 120 days.
Check out the best current mortgage rates
Changes to your mortgage payment
As noted above, if you have a variable-rate mortgage or a HELOC, you will be seeing an increase in your payment size. Here's a sample calculation:
According to Ratehub.ca's mortgage payment calculator, a homeowner who put a 10% down payment on a $700,000 home with a 5-year variable rate of 0.90% amortized over 25 years (total mortgage amount of: $649,530) has a monthly mortgage payment of $2,418.
With today’s 25-basis point rate increase, their variable mortgage rate will increase to 1.15% and their monthly payment will increase to $2,491.
Bank of Canada rate announcement: The bottom line
No matter what your mortgage situation is, if you're unsure what to do in the wake of today's Bank of Canada rate announcement, you can always contact one of our agents at our in-house brokerage, CanWise, who can go through different mortgage scenarios with you to make sure that you’re ready for rising rates.