The Future of Mortgage In Canada
Get the information on what YOU need to know about the latest Bank of Canada interest rate hikes.How much further will RATES go?
As you know, your variable rate mortgage, line of credit and student loans are all based on the Prime Rate and here is an update on the recent Bank of Canada announcement. As of 10AM EST on 13th of July, 2022, the Bank of Canada has increased their Overnight Rate by 1.0%.What's next?
This will likely not be the last rate increase we will see. The Overnight Rate is likely going to increase a few more times this year as part of the Bank's toolkit combat inflation. When the Bank of Canada raises the overnight rate, it creates an inverse effect of cooling spending and thereby curbing inflation. I know we have all been feeling the price of groceries and gas, but don't panic! We are here to help and advise you on the best course of action for you and your long-term goals.Lenders and the media can create a panicked frenzy when interest rates rise (like they have recently), which might encourage you to think about locking in now in fear of rates going up again. This means more profit for the lender, a longer financing commitment from you and difficulty breaking that mortgage later!
Below are some questions we've been asked recently regarding interest rates rising.
Q: How often does the Prime rate change?
A: On eight pre-determined dates per calendar year, the Bank of Canada makes announcements relative to changes to their Overnight Rate. Generally speaking, the Prime Rate moves along with the Overnight Rate as a result of those announcements.
There are 3 scheduled dates for the interest rate announcements left for 2022:
- September 7
- October 26
- December 7
Q: Why is Prime increasing by so much and when will it stabilize?
A: The Bank of Canada uses their Overnight Rate to stimulate or slow the economy down. Currently inflation is incredibly high so the increase in Prime is meant to slow it down.
Expectations are that Prime will continue to increase until inflation comes back down to the Bank of Canada’s comfort level of around 2%. While Prime has increased by 1.0% in the past Bank of Canada announcement, resulting in the current Prime Rate of 4.7%, to put that into perspective, the Prime Rate in January 2020 was 3.95%.
Q: With rates being so volatile lately, should I be getting a pre-approval/rate hold if I’m considering a move?
A: Absolutely. Even during more stable times, we recommend getting a pre-approval/rate hold to protect yourself against the risk of rising rates while you’re looking for your next home. You can BOOK a complimentary consultation with our mortgage agents by registering on our website.
Q: If I get a pre-approval/rate hold will it protect me against the Prime Rate increasing?
A: No. A pre-approval/rate hold on a variable rate guarantees the discount to Prime. For example, if your rate hold is for a rate of Prime minus 0.60%, that is what you are guaranteed. If Prime fluctuates within your pre-approval period, your applicable rate will fluctuate also.
Q: With the Prime Rate expected to rise, should I be looking at converting to fixed?
A: Everyone’s scenario is unique. Factors like what your current rate is, length of time to maturity and fixed rate options all come into play. Contact us so we can provide input on your situation.
IK Financial Mortgage Team operates on behalf of Mortgage Edge. Lic#10680
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