2018 has been off to an interesting start so far with the announcement of the new mortgage rules and the implementation of the stress test on conventional mortgage applications, today we also have some news from the Bank of Canada. This morning, the Bank of Canada (BoC) increased its target for the overnight rate by a further 0.25%. The bank rate is now 1.50% and the deposit rate is now at 1%.
This is now the third time the BoC hiked its benchmark interest rate in the past 6 months, in July 2017 and again in September 2017, and today, bringing the total increase to 1.25%.
This means that the Prime rate on your mortgage, line of credit or student loan will increase from 3.20% to 3.45%*. BoC has shared some insight on the current economic conditions in relation to their announcement.
“Consumption and residential investment have been stronger than anticipated, reflecting strong employment growth. Business investment has been increasing at a solid pace, and investment intentions remain positive. Exports have been weaker than expected although, apart from cross-border shifts in automotive production, there have been positive signs in most other categories.
Looking forward, consumption and residential investment are expected to contribute less to growth, given higher interest rates and new mortgage guidelines, while business investment and exports are expected to contribute more. The Bank’s outlook takes into account a small benefit to Canada’s economy from stronger US demand arising from recent tax changes. However, as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.”
Normally, mentioning a 0.25% impact wouldn’t create much of a stir, however, Canadian households are in a unique position. Household debt and house prices are at record highs, fixed and variable interest rates near historic lows. Home Equity Lines of credit, which have been funding the Canadian lifestyle and the private mortgage business, will see higher interest payments as a result. How high? We are estimating that for every $100,000 in mortgage debt, a 0.25% increase in Prime would result in a monthly payment increase of $13.00.
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.
If you are currently in a variable rate mortgage, line of credit or have high-interest debt you wish to consolidate and are concerned about further rate increases, please do schedule a call with me by clicking here or email me at Ajit(AT)LoanBox.ca and I would be happy to review your mortgage options together.
Click here for today’s full announcement from BoC. The next announcement will be on Wednesday, March 7, 2018.
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Bank of Canada, https://www.bankofcanada.ca/2018/01/fad-press-release-2018-01-17/ accessed January 16, 2018,
