Bank of Canada Raises Rates by 0.25%. How is your Mortgage Impacted?

Bank of Canada Raises Rates by 0.25%. How is your Mortgage Impacted?

Hi this is your Brampton Mortgage Broker - Rumy Gill bringing you an update on the Bank of Canada Rate Increase of 0.25% and how your mortgage is impacted.

It comes with no surprise to most Canadians that the Bank of Canada has yet again announced another rate increase for the 8th straight time. There was speculation on how much of an increase the Bank of Canada was going to announce, most believed that it would be only 0.25% and others had a feeling it would be half a percent, 0.50%. This time it is a quarter percent, 0.25% rate increase. Although this rate increase is quarter percent rather than half a percent, most of us would have appreciated a hold on any rate increase, so we can take a moment to gather ourselves.

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I think it is fair to say that, after 8 straight announcements of rate increases, Canadians are fed up and tired of the runaway cost of borrowing that keeps piling up and we just want a pause on these rate increases. With the cost of goods and living at an all time due to inflation and other factors, we Canadians could all just use a break from these rate increases. I feel that I am only speaking to what most Canadians are thinking to themselves, and that is that, the Bank of Canada needs to put a pause on the rate increases and hold still and see how the financial landscape plays out for a few months before thinking of making another rate announcement.

Now because of this rate increase, the prime rate for mortgage lenders and banks will likely increase by 0.25%. This will push the prime rate up from 6.45% to 6.70%.

So, who is impacted by the Rate increase, all mortgages are directly tied to the prime rate. Let's briefly go over a few of these.

*Variable mortgage rates are directly impacted as these mortgages are directly tied to the prime rate, (unless you have a variable rate mortgage that has static payments, then you could be subject to a balloon payment). Since variable mortgages offer a discount on prime rate (prime minus) that means when the prime rate increases (such as today's rate announcement on Jan 25th, 2023 of 0.25%) then your variable rate will increase by the same. This will result in an increased mortgage interest rate and increased mortgage payment.

*Home Equity Line of Credit (HELOC) are directly impacted as these types of mortgages operate off the prime rate, either prime minus or prime plus depending on your mortgage lender. Since there was a rate increase from the Bank Canada, there will certainly be an increase to your Home Equity Lines of Credit. So with your Home Equity Line of Credit, depending on if you have used any of the available funds, then your payments will change to reflect the new interest rate increase, and any more funds you use from the home equity line of credit will be subject to the new rate increase resulting in a higher payment. This also applies to home equity line of credit holders that have not used any of the funds available, if you were to use the funds now you will be also subject to the rate increase in higher payments.

*Renewal mortgages that are due for renewal are impacted as they will be subject to higher interest rates that will be available to them.Renewal mortgages will not be able to continue with their current rate they enjoyed for their mortgage term, they will unfortunately be subjected to higher interest rate that are on the current market. These mortgage holders will have to choose to either renew with their current mortgage lender at the rate options they are being offered, or either switch lenders and try to find a better rate elsewhere. Renewal mortgage holders will see an increase in their monthly payments as a result of the multiple Bank of Canada rate increases.

Who is not impacted by the Bank of Canada rate increase.

*Fixed Mortgage Rate holders are not affected as their rate is locked in for the mortgage term. However, if your?mortgage is?coming up for a renewal or looking to get a new mortgage for a purchase or refinance, (mortgage renewal, home purchase, refinance, want

?looking to get a fixed rate mortgage then due to the rate increase, you will be subject to higher rates for a fixed mortgage.

*Pre-Approved fixed rate mortgages, if you have locked in a pre approval mortgage for a fixed rate then your rate is secured as long as you are.

So after reading all of this you may have some questions right now about how your mortgage is impacted by the rate increase, such as;?Should I lock into a fixed rate mortgage? Should I ride out this wave of increases to my variable rate mortgage? My mortgage is coming up for renewal, what should I do?.

These are all great questions and not only do they deserve answers, they deserve answers that best help your situation and not just a generic answer written here. If you really want to get the answers that best help your situation then I invite you to reach out to me and we can have a discussion and go into full detail around these questions or any questions you have regarding your mortgage.

I look forward to hearing from you.?

Thank you.

Rumy Gill (Mortgage Broker)

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www.BramptonMortgageBroker.com

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