As widely anticipated, the Bank of Canada today increased its prime rate to 2.75%, affecting variable mortgages. The Bank of Canada is the first central bank in the G7 to raise rates once, let alone twice as they have did for the first time 5 weeks ago.
It is anticipated that rates could raise as many as 2 more times in the next 10 weeks before holding steady, according to the article. Factors that could influence the decision in the weeks to come include the economies of Europe and the US and how their economies affect the Canadian economy.
The rate increases are primarily to encourage Canadians to pay off debts instead of borrowing money, and to ease inflationary concerns in the economy. They will also have the effect of increasing the value of the dollar in world markets and will make it more expensive for other countries to buy Canadian product, potentially affecting exports and slowing the economy.
How This Affects You and Your Mortgage
Variable rates being higher will increase your variable rate mortgage or adjustable rate mortgage. The most common question that I am asked regarding this situation is “when do I lock in my mortgage to a fixed rate mortgage?” If you are purchasing a home and need a mortgage, it is still my belief that if you can qualify for the home that you want using the more stringent variable rate criteria, that it is worth doing so, as even with the announcement today I still have variable rate mortgages with a rate as low as 2%, and the fixed rate mortgages are not nearly as good.
If you are currently in a variable and your rate is more than prime, then I think rather than locking into a fixed rate mortgage, you should look at the possibility of remortgaging at the current rates. Many of my clients are in such a position and would really benefit from the lower rates.
If you have any questions or would like some help to determine the best route for you to take with your mortgage, please complete the simple form below, and I will be in touch with you shortly.