This morning the Bank of Canada announced an increase to their policy interest rate by 50 basis points from 3.25% to 3.75% as they continue their quantitative tightening.
This increase in the Bank of Canada rate will mean a change to the Prime Lending Rate. Banks and other financial institutions will raise their prime rate in the coming days from 5.45% to 5.95%. This increase will directly affect variable and adjustable-rate mortgages, as well as Home Equity Lines of Credit (HELOC).
Adjustable-rate mortgage holders can expect a monthly increase of approximately $30 per $100,000 of mortgage balance.
If you have a Static payment variable rate, I recommend increasing your payment or making a lump sum to ensure you are paying down your principal and avoid the trigger point as some may be near this number.
There are no changes if you have a fixed rate mortgage.
As outlined in the Bank of Canada Press Release this morning, "The Bank expects CPI inflation to ease as higher interest rates help rebalance demand and supply, price pressures from global supply distributions fade, and the past effects of higher commodity prices dissipate. CPI inflation is projected to move down to about 3% by the end of 2023, and then return to the 2% target by the end of 2024."
Economists are also currently predicting interest rates should level off in 2023, before starting to decrease in 2024.
A few recommendations as you plan for your future:
Variable rates by nature fluctuate, but the increase we have seen over the past 6+ months have been a very sharp rise and subsequently your payment increases are likely being felt. As history shows us this too shall pass but if you're concerned, please reach out to review your options so that you can control your outcome and reduce any unnecessary stress.
As you think about the future, I urge you to also look for the opportunities in the market and as always, if you have any questions, I'm here to help in any way I can.
Jenna Nash-McCabe, Kamloops Mortgage Broker