The Bank of Canada had their rate update today (March 2nd, 2022) and announced a much anticipated .25% rate increase to the over lending rate. This means it went from 0.25% to 0.50%. This is the first time the bank of Canada has risen rates since the start of the pandemic.
Below we clarify what this means to the average Canadian as far as the mortgages and debts go, you can read the full update from the Bank of Canada here: https://www.bankofcanada.ca/2022/03/fad-press-release-2022-03-02/
Key Points from the Update
- The Bank of Canada has increased their rate by .25%
- The Canadian economy is growing faster than expected by the Bank of Canada as oil prices rebounded and the Omicron Variant recover proceeded
- Inflation has hit record levels. Rate increases may help curb inflation
- The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty, causing a rise in commodities and will add to overall inflation
How this Affects Everyday Canadians
- The Bank of Canada has increased their rate by .25%
- Variable rate mortgage holders: Your interest rate will increase by .25% and you will be notified by your lender of the rate increase and if your monthly payment will increase
- Line of credit: your minimum monthly payment will increase as lines of credit are based off of the Prime Rate
- For every $100,000.00 of mortgage payments will increase by roughly $12.00 a month (based on a 25 year amortization)
Our Thoughts
Variable rates remain very attractive due to the large gap between fixed and variable rates at this time. In many cases it will take another 6 increases in the Bank of Canada rate to equate a variable rate to a fixed right now. In the meantime there are great savings to be had. Our recommendation to variable rate customers is to continue on as is. If you are able increase your monthly payments to what you would be paying on a fixed rate mortgage as this will really lower your mortgage balance overtime and compound the savings effect.
Many people will likely reach out to us worrying about where the variable rate could be going. Keep in mind that it is still nowhere near as close to what is was only 3 years ago. Right now this increase will make banks prime rate 2.70%. The highest rate in Canada for prime in the last 12 years is 3.75%. So this is still well below average.
As always please reach out to us if you have questions about your mortgage or want us to run any numbers / scenarios for you.