The Bank of Canada announced this morning another interest hike of .50%. Interest rates for variable mortgages and Home Equity Lines of Credit will rise by .50%.
What does this mean for variable rate mortgage holders?
If your mortgage is with a lender that adjusts the payment when prime rate changes your payment will be increasing and you will be notified when prime rate changes.
For every $100,000 mortgage your payment will increase by approximately $32/month by a prime increase of .50%
E.g. if your mortgage is $400,000 your payment will increase by $128/month.
If your mortgage is with a lender that does not adjust the payment when prime rate changes your payment amount will remain the same, however the amount that goes towards principal and interest will be adjusted accordingly. This would increase the amortization. Your payment will only increase if rates go higher than the “trigger rate” on the documents you signed with your notary/lawyer. The “trigger rate” is different for every mortgage so please refer to your mortgage documents.
The major bank economists latest predictions indicate perhaps another .25% in Dec and again in January, and then in late 2023 early 2024 rates will drop to likely a new normal of prime around 4.5%. Assuming a Prime rate @ 4.50%, and your variable rate discount is 1%, your rate will be 3.50%. Consensus is that these higher rates are short term as the Canadian economy cannot sustain such high rates long-term. It is likely we are facing another year and couple of months (until late 2023 or early 2024) before rates start to decline.
Here is the history of prime. https://www.mcap.com/Prime-Rate-History
Information provided by Sheryl Elsom https://www.sherylelsommortgages.com
The next scheduled Bank of Canada rate announcement is Wednesday December 7, 2022.
Official Press Release HERE
Please do not hesitate to contact me should you have any questions or would like to discuss further.
Thanks,
Aaron
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