The Bank of Canada announced today that it is increasing the key overnight rate by 50 basis points from 1% to 1.5%. As in the last announcement, the Bank noted strong economic growth in Canada, and is predicting continued solid growth in the second quarter of 2022. Inflation continues to be the primary source of concern, driven by factors including the war in Ukraine and COVID-related lockdowns in China that are leading to continuing supply chain disruptions.
The Bank was very clear: mortgage rates will continue to rise. You can be fairly certain that the next announcement on July 13 will bring news of another 50-basis point rate increase.
What this means for you
If you have a variable-rate mortgage or a home equity line of credit (HELOC), you need to understand what the effect of this 50-basis point increase on your mortgage payment will be, and you should be budgeting for further rate increases of 1-2% by the end of 2022. A helpful tool to simulate different mortgage situations is Ratehub.ca's mortgage payment calculator.
If you have a fixed-rate mortgage, this announcement won't affect you until your mortgage is up for renewal, but be ready for higher rates when the time comes. If you're currently shopping for a home, you ought 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.
You should also bear in mind that, as rates go up, so does the stress test. If you're looking to buy a home, you should try several stress test simulations to account for multiple rate rises over the remainder of 2022.
Check out the best current mortgage rates
Should you buy now, or not?
It's important to keep in mind that, as a general rule, the decision to buy a home should be based on your personal situation, not on the market environment. If you're in need of a new housing situation and you're ready to buy, you should buy. Whether the real estate market is stable or volatile as it is today, purchasing a home should be spurred by your household finances and need, not by trying to time the market.
Changes to your mortgage payment
If you have a variable-rate mortgage or a home equity line of credit, you'll be seeing a pretty immediate increase to your monthly payment. Here's a sample calculation:
According to Ratehub.ca's mortgage payment calculator, if you put a 10% down payment on a $750,000 home (average home price in Canada in April 2022 was $746,146, according to CREA) with a 5-year variable rate of 1.90% amortized over 25 years (total mortgage amount of: $695,925), you have a monthly mortgage payment of $2,913.
With today’s 50-basis point rate increase, your variable mortgage rate will increase to 2.40% and your monthly payment will increase to $3,083.
This means that you'll pay $170 more per month or $2,040 per year on your mortgage payments.
Bank of Canada rate announcement: The bottom line
No matter what your mortgage situation is, if you're feeling unsure about what to do following today's Bank of Canada rate announcement, it's a good idea to contact one of our agents who can go through different mortgage scenarios with you to help you navigate today's rising rate environment.