Bank of Canada Rate Increases Overnight rate by .25%... What This Means For You.

News for you...

In case you haven't heard already, the Bank of Canada increased their overnight rate by .25% earlier today (up to .75%). The BoC's overnight lending rate is the primary influencer for every major lender's prime interest rate which is what your variable mortgage rate is based on. Each lender will make their own decision on increasing their prime lending rate but, most likely all of them (including yours) will increase their prime rate congruently with the BoC's rate a.k.a. your rate will most likely go up .25%. 

At this point or at any point in your mortgage term, you have the option to opt for a fixed interest rate if you no longer wish to continue with a variable rate mortgage. Your fixed rate option will be based on either a new 5 year term or a term that is at least as long as the time remaining on your current term/agreement (3.5 years left = min. 4 year new term). This will depend on your lender and the interest rates available to 'lock-in' at, will simply depend on what your lender is currently offering.

If you're concerned about continuing with a variable rate, you should contact your lender right away to confirm what they will offer you to 'lock-in' a fixed rate and no, it's not going to be what your current rate is. It will be higher. If your a client of mine or you're willing to sign a consent form, I can show you what your new fixed rate options would be and help you compare the payments and interest costs to what you can expect going forward with your current variable rate. Note: Some lender, like the big 6 banks, may only let you request a fixed rate option at a local branch.


My general advice...

Don't panic. The increase is only .25% and given the current state / five year outlook of the Canadian economy, it would be highly unlikely that the BoC would continue to further increase rates past .75% in the near future. At least, they will need to consider how this rate hike effects consumers and the economy in the next few months. If you're concerned about how much your payment will increase I can give you a specific quote but, here's an example: A .25% rate increase on a $300,000 mortgage would mean an increase of $36 per month or about $17 bi-weekly.

What's important to consider is that chances are, you're still going to be ahead of the game vs. if you chose a fixed interest rate when you signed your current mortgage agreement and a fixed rate option right now will also be higher than what you're currently paying. And if you signed your mortgage agreement prior to January 2015, your rate was .30% higher then anyway (so you'll be almost back to where you started).

I think if you're lucky enough to be sitting around 2.25% or less before the increase today, you're safe and would still be doing better if there was a further .25% increase after today. I would really only consider my fixed rate options if you were at 2.30% or higher.

That's just my professional advice. Don't hold me to it! ;)


Oh and one more thing... Don't let the news media scare you with their ill-informed advice and their totally inaccurate but, 'eye catching' graphics. Even nationally trusted news sources like The Globe & Mail have been wrong about important details and seem to be pushing more 'news stories' that invoke clicks rather than inform.

Ex:




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