February 2nd, may have come and gone with Punxsutawney Phil not seeing his shadow earlier this year, forcasting an early spring. But the fun beloved tradition of the weather predicting animal was obviously wrong. Based on today’s Bank of Canada interest rate annountment increasing the key lending rate, it feels like Groundhog Day, where we are likely in for several more weeks of ‘winter’ with inflation still not fully under control.
The Bank of Canada raised its key lending rate by 0.50% today. This is the 7th consecutive increase by the Bank of Canada and means most lenders will raise their prime rate to 6.45%. As has been stated before, these rate increases are the main tool that the Bank of Canada can use to lower inflation, which peaked at 8.1% earlier this year on June 1, 2022.
Watch our short video to learn more how this may impact you:
Before we dive into a few highlights from today’s Bank of Canada Press release, there are two points on the diffcult balancing act at hand, that are worth noting, which Govenor Tiff Macklem stated in his speech before the House finance committee last month:
- “If we don’t do enough, Canadians will continue to endure the hardship of high inflation. And they will come to expect persistently high inflation, which will require much higher interest rates and, potentially, a severe recession to control inflation. Nobody wants that.”
- “If we do too much, we could slow the economy more than needed. And we know that has harmful consequences for people’s ability to service their debts, for their jobs and for their businesses.”
Press release | Ottawa, Ontario: Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening:
What this announcement means for homeowners with a mortgage:
- For Variable Rate Mortgages with static payments (VRMs): Your payment amount won’t change unless you’ve reached your trigger rate – when your payment no longer covers your interest. Your lender will communicate any increase and the effective payment date. To stay on track you should look at voluntarily increasing your mortgage payments if you are able to do so.
- For Adjustable Rates Mortgages (ARMs): You will see an increase to your mortgage payment of about $26 per $100,000 mortgage. Your lender will communicate your new payment amount and the effective payment date. If you want to lock into a fixed rate, contact your lender to find out what the fixed rate is that you are offered, then send our mortgage team the details or book a call with us. We can review the offer and some of the other factors that you need to consider before making the change.
- If you are in a fixed rate mortgag: Nothing changes for you. Your mortgage payment will not change since these products are not tied to the prime rate and aren’t affected. Although, if your mortgage is up for renewal in 2023 why not avoid possible payment shock? But how you ask? Contact our Edmonton mortgage team, Benchmark, and we can discuss a strategy for your future plans that will help you avoid paying more than you could by waiting.
While ultra-low rate mortgages of the last decade are no longer aavailable, Canadians have other options available that could alleviate the pinch caused by higher payments on their mortgage and home equity lines of credit, and other expenditures.
Ready to Explore Your Options? Let’s Do This! Apply Now. Our Mortgage Broker team has helped client all over Edmonton, including those in Sherwood Park, St. Albert, Spruce Grove and through-out other Alberta communities and across Canada. While we may not be able to control the current interest rate environment, we can offer additional insights to help you be well-advised and positioned to make the best decisions possible for your mortgage.
Mark your calendars: The next scheduled date for the Bank of Canada announcement will occur on January 25, 2023. On this date, the Bank will publish its next full outlook for the economy, inflation, and include risks to the projection, in the quarterly Monetary Policy Report at the same time.
Interested in reading more? Check out the full Bank of Canada’s December 7, 2023 interest rate announcement.
Source: Bank of Canada
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