Going Hiking!
Yesterday morning the Bank of Canada announced that it would be increasing its overnight rate for a whopping 8th consecutive time by 0.25%, bringing it to a total of 4.5%. In response, lender prime rate now sits at 6.7%. Although we knew that this hike was likely, following a not entirely subtle suggestion at December’s announcement that the hikes would continue (albeit somewhat slowly), this new increase leaves many Canadians feeling rightfully exhausted and frustrated with the future of not only our economy but their own bottom line.
So, what are the takeaways from today’s announcement? After speaking with my mortgage broker regarding the latest hike, here was his quick breakdown on how the increase may affect those with a mortgage
-If you hold an adjustable rate mortgage (a variable rate with a fluctuating payment) then your payment is set to increase roughly $13 for every $100k you have left outstanding on your mortgage balance.
-If you have a variable rate mortgage (with a static payment) then it’s likely that today’s announcement will push you into trigger rate** territory (if you haven’t reached it already).
-If you hold a fixed rate mortgage, this increase will not effect your monthly payments during your current term
-We knew that the Bank was going to continue to aggressively target inflation with its interest rate manipulation which is the only real tool in its arsenal to do so. With December’s report illustrating a fairly strong slow down of economic inflation, it’s no surprise that compared to previous hikes, this was just a minor increase.
Going forward, the jury is out on whether we will see more increases. It’s no secret by this point that much more upward rate pressure could have a severely negative impact on the economy. That being said, it is something that the BoC will try to avoid. At this point, only time will tell!
**Generally speaking, the trigger rate is when your interest payments exceed your total payments. Meaning, you are unable to repay your loan with your current payment schedule.
