The Bank of Canada has just raised its overnight rate by a quarter of a percent. It’s all over the news but what does that mean to the average homeowner or better yet, to the home buyer right now?
This rate rise is the third rise in the last six months and is due to the stronger than expected economic performance in Canada.
Also, inflation seems to be staying close to two percent. Experts say that this two percent inflation rate may fluctuate in this next year (mainly due to oil and electricity prices) but will most likely hover around that same number. So what does that mean? Residential growth has been strong in 2017 but may slacken as new mortgage rules take effect combined now with these hikes in interest rates.
OK, so how does this affect the average homeowner? This news will only be of concern to those who currently have a mortgage or are toying with the possibility of entering into a mortgage agreement.
When the Bank of Canada rate rises, this is then passed onto the consumer as the commercial banks raise their lending rates to their customers. If you have a fixed rate mortgage, you are not affected as your mortgage interest rate is fixed at the percentage that you signed it at. Those with variable mortgage rates will be paying more per month – a quarter of a percent rise translates into $13 per month rise on each $100,000 of your mortgage. So, on a $400,000 mortgage you will now be paying an extra $52 per month. Tallying up all of the past six months rate hikes now equals an extra $156 payment per month on a $400,000 mortgage. Most people will probably not see an increase in their payments, this just means that you may be paying off less of the principle and more interest.
Those of you who will be looking to refinance your existing four or five year fixed mortgage in the next few months shouldn’t see too much of a change as you will probably be refinancing at around the same percentage interest point as you did five years ago. Analysts say that most Canadian homeowners have such a fixed home mortgage and that only around twenty percent of mortgage holders have the variable type of mortgage.
The next scheduled date for announcing the overnight rate target is March 7, 2018. Stay tuned to see what happens in the real estate sector particularly in our own Central Okanagan
Have any questions? We are always here for you and your real estate concerns.