Variable interest rates have been the better option for many years and have saved homeowners significant sums of money. However, the Bank of Canada recently increased its prime rate by a quarter of a percentage point to 0.75 per cent, prompting charter banks to hike their prime rates to 3.2 per cent. The Bank of Canada jumped at the opportunity to make a 0.25 per cent hike last week over concerns about being behind on inflation as well as high levels of consumer debt. This somewhat surprising hike before the scheduled monetary policy update in October could be a tip-off that more could be coming.
A Bloomberg survey of economists says Canada’s central bank will raise its benchmark interest rate for a third consecutive meeting in October. The Bank of Canada’s overnight target rate will rise a quarter percentage point to 1.25 per cent at the Oct. 25 meeting, which would be the highest level since 2008, the median of seven estimates in the monthly poll showed. The August survey had rates reaching that level in April 2018. [Financial Post]
What does the rate increase really mean for Canadians? Well, it depends on what loans you are holding. You will notice upticks in lines of credit, certain credit cards and if you have a variable rate mortgage. Canadians with a fixed-rate mortgage won't have to deal with the impact until it's time to renew at the end of their fixed term. That being said, anyone who currently has a variable rate mortgage should consider if now is a good time to lock into a fixed-rate mortgage. Doing so might buy you peace of mind if the thought of rising interest rates keeps you up at night. If you are currently looking for a home now is the time to get a pre-approval that guarantees today's fixed rates for 120 days.
We always recommend that people get a pre-approval for a mortgage before shopping for a home anyways, as to solidify the budget they are working with and avoid hiccups in the home buying process. If you are looking to define your purchasing power after this rate hike, please feel free to contact us!