In a move that has been widely anticipated by economists, the Bank of Canada has raised their Key Overnight Rate by 0.25%. Though we are waiting to hear how the banks will respond, it is likely they will increase their Prime Rates by 0.25% as well. The last time the Bank of Canada raised their rates was October 23rd, 2018! The most recent adjustment by the Bank was in the spring of 2020 where we saw the record decreases in the early stages of Covid.
So what does this mean for you?
If you have a fixed rate mortgage, there will be no impact for you. Your current rate and the associated payments are guaranteed until the end of your mortgage term.
If you have a variable rate mortgage or a Home Equity Line of Credit, your rate will likely increase by 0.25%. Depending on several factors, this may or may not impact your mortgage payments. For example, if you are paying the minimum amount with Scotia, then your payments will increase. Other lenders do not automatically increase payments. Your lender will contact you in the next 15-30 days to let you know how your mortgage will be impacted. If you increased your payments to protect you from the “payment shock” of rate increases, then your payments shouldn’t be impacted.
Most variable rate mortgages offer the ability to convert the variable rate into a fixed rate. If you are interested in doing this, we suggest that you contact the lender and ask them what their current fixed rate would be. As fixed rates can be 1.50% to 2.00% higher than variable rates, the rate you would be “locking in to” could be considerably higher than your current rate. This means that the Bank of Canada could increase their rates by 1.50% before the rate equals the current fixed rate.
If you would like to review your current mortgage, please let us know. We are here to help!