The Bank of Canada has just raised its key lending rate by 50 basis points, bringing it to 1.00%.
This marks the second change to the Bank's overnight target rate this year and the first 50-bps rate hike since 2000.
In its statement accompanying the decision, the Bank said, "With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further."
The Bank now expects CPI to average "almost 6% in the first half of 2022 and remain well above the control range throughout this year" before easing to 2.5% in the second half of 2023 and returning to the 2% target in 2024.
What happens now?
In the coming days, banks and other financial institutions are expected to follow the Bank of Canada's lead and hike their prime lending rate–or prime rate–which is used to price variable-rate mortgages and personal and home equity lines of credit (HELOC).
Once the prime rate rises, existing variable-rate borrowers will see their rates increase. This may result in a slightly higher monthly payment, or for variable-rate borrowers with fixed payments, more of their payment will go towards interest cost while less will go towards principal repayment.
As a general guide, the increase to your mortgage payment per $100,000 is approximately $25 per 0.50% increase in prime on a 25yr amortization. If you are having trouble figuring this out please let me know and I can assist you in running numbers.
If you have a fixed-rate mortgage, you will see no change to your rates.
If you have questions about the impact rising rates may have on your financial situation, give me a call so we can discuss your options. Although I live in PEI, I can write mortgages anywhere in Canada so if you have any questions in regards to your mortgage reach out today!