Once again, The Bank of Canada has raised its overnight target rate by a half-point, bringing it to 1.50%. A few influencing factors are the Russian invasion of Ukraine, China’s COVID-related lockdowns, and ongoing supply disruptions, boosting inflation.
What does all this have to do with mortgage rates?
When The Bank of Canada raises the overnight target rate, it becomes more expensive for lenders to borrow money. So they raise their prime rates to cover the added expense. The overnight target rate serves as the basis for the prime rate, and prime serves as the starting point for variable-rate mortgages, line of credits and student loans.
Why does the prime rate continue to rise?
The Bank of Canada uses their overnight rate to stimulate or slow down the economy. Inflation is incredibly high, so the increase is meant to slow it down.
Should I convert my variable-rate mortgage to a fixed term?
As a rule of thumb, if your interest rate is still less than 3%, it does not make sense to convert to a fixed term. I can help work with you to develop strategies like increasing payments or the frequency of your payments to help mitigate the risk of higher interest rates.
Should I get pre-approved for a mortgage?
Both fixed and variable-rates have been rising, impacting how much mortgage you qualify for. A pre-approval will hold a rate for up to 120 days while you shop for a home. When you are trying to buy a house in a competitive market, a pre-approval letter from your mortgage broker tells the seller you are ready and able to commit. If your offer includes a pre-approval letter, the property owner will know how much you can borrow. This can give a seller confidence in your ability to fund the deal and close quickly.
Before COVID 19, what was the prime rate?
In late 2018 the overnight target rate was at 1.75%. It remained there due to the strengthening of the Canadian economy, rising fed rate in the United States, improving employment and rising inflation. The economic situation drastically changed in March 2020 because of COVID 19.
Banks and other lenders are expected to raise their prime rates in the coming days, which will increase rates for variable-rate mortgage holders. I’m here to advise you on the best course of action to help you with your long-term mortgage goals.
The next scheduled date for announcing the overnight rate target is July 13, 2022.