Interest Rates

PRIME’S MOVED UP AGAIN…

What to expect with the Bank of Canada’s 2nd increase of their Overnight Rate this year

Another increase was anticipated by most Economists and predictions pointed to the Bank of Canada’s October meeting. However, when the Bank of Canada released their decision to increase their target rate on September 6th, it took many people by surprise.

This second increase was by another 0.25%, pushing the target rate from 0.75% to 1.0%.

In response, within hours, all the Banks announced they’d be increasing their Prime Rates by the full 0.25% again, raising Prime anywhere from 3.20% to 3.35%, depending on Lender.

This change affects variable interest rate mortgages and any credit facilities that are tied to Prime (such as credit cards, lines of credits, and loans).


BoC2

RECAP & NOW:

In response to the struggling economic conditions, the Bank of Canada lowered their policy rate TWICE in 2015 by 0.25% each time. Then, as reports were released earlier this year that our economy was finally adjusting, it was speculated that the previous two emergency rate cuts might be clawed back. The only question was when…

Last week, with Canada’s annualized GDP growth coming in at 4.5% in the second quarter, the Bank of Canada reversed the remainder of their 2015 rate cuts.

Lender Prime rates, of course, followed suit shortly after.

For a further review on WHO this affects, HOW this may affect those effected, and WHAT to do if you’re in a fixed interest rate mortgage or still house hunting, see my earlier blog post here.

KEEPING SOME PERSPECTIVE:

Although another jump of 0.25% seems daunting, this translates into an approximate increase of $12.50/month in interest costs for every $100,000 borrowed.

Also, the 2010 mortgage changes that required variable-rate borrowers to qualify at a “stress test” (ie. a higher qualifying rate) mean that most people should theoretically still be able to make their payments even if their rate more than doubles. However, this “stress test” doesnt protect the people whose personal debt levels have increased substantially from when they qualified for their mortgage and/or those who may have had any revenue issues with their rental properties.

SOME EXAMPLES OF POSSIBLE MORTGAGE PAYMENT INCREASES:

Depending on when you signed your mortgage commitment, if you have a 5-year variable interest mortgage, the rate you signed on with is likely around 1.95% to 2.20%. With the recent changes, you may be looking at the below approximate increases in your monthly mortgage payments:

 

  • $100,000 loan:
    • @ 2.20% – $433.16/month
    • @ 2.45% – $445.48/month
    • @ 2.70% – $457.99/month
  • $200,000 loan:
    • @ 2.20% – $866.33/month
    • @ 2.45% – $890.96/month
    • @ 2.70% – $915.97/month
  • $300,000 loan:
    • @ 2.20% – $1,299.49/month
    • @ 2.45% – $1,336.44/month
    • @ 2.70% – $1,373.96/month
  • $400,000 loan:
    • @ 2.20% – $1,732.66/month
    • @ 2.45% – $1,781.92/month
    • @ 2.70% – $1,831.95/month
  • $500,000 loan:
    • @ 2.20% – $2,165.82/month
    • @ 2.45% – $2,227.40/month
    • @ 2.70% – $2,289.94/month
  • $600,000 loan:
    • @ 2.20% – $2,598.99/month
    • @ 2.45% – $2,672.88/month
    • @ 2.70% – $2,747.92/month

If you have a variable interest mortgage that had a payment increase with the last Prime change and you would like to know what your payment will now rise to, input your original loan amount and interest rate (after bumping it up by 0.25%) into the mortgage calculator found on my website here OR contact me and Id be happy to help you determine your new payment amount.

MORE CHANGES?

Future rate increases? This will depend on Canada’s economy. If the current trend of “stronger than expected growth” continues, there is speculation that another rate increase could happen before the end of the year or early next year. However, with current 5-year fixed interest rates now sitting in the low to mid 3%’s, staying with your variable rate instead of locking it into a fixed interest rate mortgage may still provide you with longer term savings.

The next Bank of Canada meeting is on October 25th. You can follow me on Facebook or Twitter for instant updates but I will also update you again in the November newsletter.

If you would like to discuss how the changes in Prime Rate impact you OR you would like to secure a rate hold pre-approval, please do not hesitate in contacting me at 780-863-0700.

Remember, call Minn for MINN-imum Stress, Maximum Service.

FINAL 1 (2017)

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