Chess. Love it or hate it, the game with sixty-four squares has been played for centuries by people of all classes and social statuses beginning with nobles, and diplomates, and eventually gaining accessibility and popularity amongst the general population. With each player beginning with sixteen pieces (one King, one Queen, two Rooks, two Bishops, two Knights, and eight Pawns) it’s no wonder that there can be countless outcomes with various strategic maneuvers allowing the game to have several parallels to other areas of life. Yes, even including the current Bank of Canada announcement today.
Today, The Bank of Canada raised its key lending rate by 0.75 percent, bringing it to 3.25 percent. which means most lenders will raise their prime rate to 5.45%. If you have a variable rate or adjustable rate product on your home, check out the Benchmark Mortgages video below to learn how this will impact your situation:
This is the Bank’s fifth consecutive rate hike and they summarized a few reasons for the increase here:
The Bank went on to state that short-term inflation expectations remain high, adding “The longer this continues, the greater the risk that elevated inflation becomes entrenched.” It also said the housing market is “pulling back as anticipated.”
So what does this mean for those that already have a mortgage? Well, if you have a fixed-rate mortgage on your property, nothing changes for you.
For Variable Rate Mortgages with static payments (VRMs): Your payment amount won’t change unless you’ve reached your trigger rate. The trigger rate occurs when your principal and interest payment no longer covers the interest portion on your mortgage, and as a result, if payments were left unchanged, your principal mortgage balance would increase. Each mortgage lender has different guidelines surrounding the trigger point and will communicate any payment increase and the effective payment date change. To stay on track with the original amortization schedule and principal paydown, you should look at voluntarily increasing your mortgage payments if your budget will allow you to do so.
For Adjustable Rates Mortgages (ARMs): You will see an increase to your mortgage payment of about $39 per $100,000 mortgage. As an example, if you have a mortgage balance of $400,000, your mortgage payment would increase approximately by $156 a month. Your lender will communicate your new payment amount and the effective payment date. If you’re thinking about locking into a fixed rate, let’s talk first.
In its statement accompanying today’s decision to increase the policy rate, the Bank said, “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further… we will be assessing how much higher interest rates need to go to return inflation to target.”
What does it mean for you?
No matter your mortgage type or rate, if you’re like many Canadians, your wallet may be feeling the pinch right now. Reviewing your budget can be a game changer!
So what is the Winning Position? With chess, you can either watch from the sidelines or play the game. Any movement on the board that positions the player’s pieces to win with correct play is a winning position. Thus it’s important to recognize in chess, and with your mortgage strategy, that every move matters. Planning the next step is essential to success. It’s no wonder why advanced players think several moves ahead. Being prepared so you are not caught unaware of an opponent’s moves is essential. That being said, if the past few years have taught us anything, it’s that even the most well-thought-out plans can sometimes derail the strategy. In those instances, do not let a check turn into a checkmate. Now more than ever, it’s important to get laser-focused on a solid mortgage strategy, complete with a Plan A and Plan B to help navigate the complexities of this 2022 market and to consider what may come with the next Bank of Canada meeting on October 26th.
We’re always happy to be of service to you and your family so if you want to discuss your situation, just call our Edmonton-based mortgage team, or book a call using the link below.
P.S. Does it feel like Summer went by too fast this year? Good News! Our Sweet Summer Fixed-Rate Mortgage offer is still available. That’s right, we’ve still got a limited-time 5-year FIXED mortgage worth exploring. We’d love to help you explore all your options so call today!
Read today’s Full Press Release: Bank of Canada September 7, 2022
***UPDATE*** September 8, 2022: Speaking a day after the Bank of Canada raised interest rates, Senior Deputy Governor Carolyn Rogers discusses where the economy stands and what the Bank is doing to get inflation back under control.
Interest rate increases take time to work
Read the Speech Summary: Getting inflation back to normal
Read Carolyn Rogers – Senior Deputy Governor’s Full Remarks: Economic progress report: Restoring price stability
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