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8th consecutive period, the Bank of Canada announced that they will be increasing the overnight rate. We are looking at an additional 25bps which will increase the Prime lending rate to 6.70%. Variable rate mortgages, credit cards, lines-of-credit, and other Prime based products are expected to increase by the same 0.25% as a result.
A bit of good news is that today’s announcement does not come as a surprise, and there are indicators that we may be through the worst period. Inflation has begun to scale back coming in at 6.30% which is down from its June peak of 8.1%. As we approach the high inflation hurdles that began in March 2022, we should see a rapid year-over-year improvement which should create rate stability, and subsequent rate decreases in late 2023 / early 2024. Fingers crossed that the light on the horizon shines through as we could all benefit from some rate relief.
The above said today’s announcement will impact Variable rate mortgages as follows:
For every $100K on your Variable rate mortgage, your payment will increase by approximately $16.22/m.
Ex: If your mortgage balance is $435,000, your payment will go up by approximately $70.56/m
Variable mortgages are currently premium priced compared to their Fixed counterparts by approximately 100bps (1.00%).
Variable rates are expected to start going down within the next year so those looking at a 5-Yr term should consider this type of product to take advantage of savings over the course of the full term.
For those looking for payment stability, we are recommending a short-term Fixed between 1-3 years. This will ensure that they are not locked in at a high rate when market conditions improve.
It has been a challenging environment as we’ve seen a rapid increase from record low rates to our current position. We are cautiously optimistic that we are through the toughest period and will begin seeing stability in the near future, followed by eventual relief as inflationary pressures begin to ease.
Written in collaboration with:
Tanya Fernandes
Owner | Broker
Trevor Bumstead
Mortgage Broker – YourMortgageMadeEasy.ca
Dominion Lending Centres – TLC Mortgage Group
