For the second time in seven years, the Bank of Canada announced that it is increasing its key Overnight rate by another 0.25%. This means that the Prime rate on your mortgage, line of credit or student loan will likely increase from 2.95% to 3.20% within the coming days.
Our in house Chief Economist, Dr. Sherry Cooper has shared some insight on the current economic conditions in relation to the recent announcement from Bank of Canada, “The Canadian economy is on a tear, dramatically outperforming the U.S., and the battering by both Hurricanes Harvey and Irma will only widen the disparity. The growth in Canada is becoming “more broadly based and self-sustaining,” according to the Bank’s press release. Last week’s Q2 GDP release showed that consumption is robust, supported by “solid employment and income growth”. Business investment and export growth have also picked up. The central bank does, however, expect a more moderate pace of economic growth in the second half of this year.
The housing sector has slowed in some markets–particularly around the GTA–in response to recent changes in tax and housing regulations in Ontario. But this is a change welcomed by the Bank and government authorities concerned about the continued rise in household debt. Tighter monetary policy portends further increases in mortgage and other lending rates. The Bank suggests that “given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates.” You can’t get more transparent than that. The Bank of Canada welcomes a slowdown in housing and borrowing activity.”
How does this rate increase affect my mortgage?
A 0.25% increase in Prime will mean a slight increase in your monthly mortgage payment, which I have estimated to be just under $13.00 per month for every $100,000 in mortgage financing. This is a minimal increase compared to if you were to lock into a fixed rate today.
What should I do now?
Depending on your current situation, as each situation is unique. If you are currently in a variable rate mortgage and are concerned about further rate increases, please do contact me to schedule a call me at 604.614.6899 or email me at Ajit@LoanBox.ca and we would be happy to review your mortgage options together.
Remember: All fixed and variable rates are still currently at an all-time low and it is STILL a great time to refinance or get a new mortgage. There is also GOOD news when rates increase, this means that if you are currently in a fixed term and would like to break your mortgage, your penalty has JUST been reduced – we will be happy to estimate your newly reduced penalty as well!
Click here for yesterday’s full announcement from The Bank of Canada. The next announcement will be on Wednesday, October 25, 2017. Please call or respond to this email, if you have any questions or concerns regarding this announcement. Happy to help!
Bank of Canada, “Bank of Canada increases overnight rate target to 1 per cent”, accessed September 6, 2017, http://www.bankofcanada.ca/2017/09/fad-press-release-2017-09-06/
Dr. Sherry Cooper, “Bank of Canada takes action”, accessed September 6, 2017, https://dominionlending.ca/news/bank-canada-takes-action/