No Need to Panic: Bank Of Canada Increases the Overnight Rate

The Bank of Canada Announced today June 1st, 2022 another .50% increase to the overnight rate, this was expected with inflation at such high levels. You may have noticed that everyday items are just a little more expensive – gas and groceries to name a few! The bank of Canada raises these rates to help bring inflation under control.

Wondering how this impacts mortgages?

Fixed rate mortgage holders: there are NO CHANGES, you’ll carry on with your fixed rate and fixed payments until your mortgage term is up for renewal.

Variable Rate or Adjustable Rate Mortgage holders: the interest rate will be adjusted or increased as Prime rates move. The interest rate will be .50% higher in the next couple of days as banks adjust their Prime rates.

With a Variable Rate Mortgage the payments are typically set and remain constant, provided the payments are still covering both interest and principal amounts. These payments should remain the same but the interest costs will increase.

Where as an Adjustable Rate Mortgage the payments will be adjusted and increased based on this new rate and the amortization.

To put it into dollar and cents perspective, payments will adjust up approximately $24 for every $100,000 of mortgage balance owing. If you have a 400,000 mortgage balance your payment will adjust up about $96 a month.

No need to panic if you are in a Variable or Adjustable Rate Mortgage, you still have a great rate!

Prime will move to 3.70 and you most likely have a discount anywhere from -.50% to -1.00% off of that rate – so your mortgage rate will be somewhere between 2.70 and 3.20% with this increase. Compare to todays fixed rates that can range anywhere from 4.29 to 4.84 and the variable rates out perform with continued flexibility and lower penalties to break if needed.

Want to take advantage of your ARM or VRM rates?

Use your prepayment privileges to increase your payments to a higher amount and build in future payment adjustments or do lump sum payments to reduce your principal Mortgage amount. These are 2 great strategies to manage and take advantage of your low rates.

When qualifying for a mortgage a benchmark rate or a stress test rate is used and it is much higher than your actual rate (currently at 5.25%), affordability with these rate increases should not impact your ability to pay as you were qualified at the much higher rate.

If your mortgage is coming up for renewal in the next year be sure to reach out and review what your options are at least 6 months prior to maturity. If you want to look at strategies to save money, restructure your mortgage, or to see what your individual options are book a time to review with one of our awesome mortgage agents!

Bank of Canada Announcement can be found here.