Housing Recovery? We May Have To Wait…
Will Your Mortgage Be Impacted By Another BoC Rate Hike?
As we recently heard, another interest rate hike from the Bank of Canada means some Canadians could be spending a lot more on their monthly mortgage bills.
According to industry professionals, it seems that variable- rate mortgage holders will be the most impacted.
“It’s all but certain that when the Bank of Canada makes this announcement, the various mortgage lenders in the country—banks, credit unions, trust companies—they will all change their prime lending rate by the same amount.”
Analysts widely predicted interest rates would be raised by three quarters of a percentage point to 3.25%. Aimed at fighting inflation, the increase follows a full percentage point hike in July, which was the largest single rate increase in Canada since August 1998. The Bank of Canada began hiking interest rates in March, after they fell to 0.25% during the pandemic.
For those with variable rate mortgages, a 3.25% interest rate could mean spending thousands of dollars more per year.
According to Ratehub.ca’s online mortgage calculator, if you purchased a $630,000 home with a 10% down payment and a five-year variable rate of 3.5%, payable over 25 years, your monthly mortgage bill would jump by $236 a month, from $2,919 to $3,155, meaning that you would be spending $2,832 more per year on mortgage payments.
If the Bank of Canada opts to only raise interest rates by half a percentage point to 3%, the same homeowner would still be paying $156 more per month, or $1,872 more a year. The average home price in Canada in July 2022 was $629,971, according to the Canadian Real Estate Association. Obviously, those with more expensive homes should expect to pay much more.
“By the size of your mortgage, the more you’re going to feel it,” Laird said.
Those with a home equity line of credit will be similarly affected, Laird notes, and an interest rate hike will also make it harder to pass a “stress test” and qualify for a mortgage.
Variable rate mortgages have interest rates that fluctuate over time, compared with fixed rate mortgages where the interest rate is locked in from the beginning.
“Historically speaking, usually they’re the cheaper way to go,” the industry expert said of variable rate mortgages.
Whether that continues to be the case depends on how long inflation affects Canadians.
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