As expected the Bank of Canada raised its target for the overnight rate to 1.5% to continue its battle against inflation.
The rate increase will impact purchasing power and reduce mortgage amounts for many borrowers, further limiting the pool of eligible buyers, many of whom have been priced out due to record-high sales prices. While a rise in rates may ease competition, economists say it will worsen affordability in the months to come.
What does that mean for your mortgage right now?
For those with a fixed rate mortgage, this won’t impact your current payments. You locked in for a particular rate for the duration of the term (most commonly 5 years) so your payment will not change.
If you have a variable rate mortgage or HELOC, how big of an increase are we talking?
For example, if you purchased your home in 2021 for $765,000 and you put 10% down on a 5-year variable mortgage when rates were at 2.15%. Your monthly payment would be about $3,057. A 0.50% rate increase would see your new payment set at $3,233. A difference of $176 per month.
For most homeowners this is not exactly earth-shattering from a cost perspective and unlikely to cause an increase in defaults.
Click Here to read the Bank of Canada Press Release.