The Bank of Canada has raised its overnight target rate by 25 basis points, bringing it to 4.50%. This will drive the prime rate to 6.70%.
The Bank said it “expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” but it is also “prepared to increase the policy rate further if needed.”
The Bank also added that it expects CPI inflation to fall “down to around 3% in the middle of this year.” That’ll give borrowers hope since 3% is the top of its inflation target.
What does this mean for your variable-rate mortgage?
Payments on Canada’s average adjustable-rate mortgage will jump almost $14 monthly on every $100,000 mortgage balance. For those with variable-rate mortgages who have not seen their payments increase over the past year, this rate jump may activate the “trigger rate.” This will increase the mortgage payment to where it needs to be to ensure the interest and principal are being paid off in accordance with the amortization schedule.
It is impossible to predict with certainty what will happen to variable rates in 2023. There is a growing consensus that the Bank has reached or is nearing its peak for this rate-hike cycle. Whether interest rates fall this year or next year remains unknown. Officials from the Bank of Canada have indicated any changes ultimately will depend on economic data that will drive its future rate decisions. The next announcement will take place on March 8, 2023.
If you would like to review or discuss your mortgage, please feel free to reach out. Many clients are currently locking in their variable and adjustable rate mortgages into a 2 or 3 year term to have stability and certainty while the rates level out. However, if you feel the rates will come down in the next 12-18 months, you are likely in the correct product, so you can ride that wave down if the prime rate does drop.