What to expect from the next Bank of Canada interest rate announcement
The Bank of Canada will issue an interest rate update today at 10 am ET.
This will mark the fifth interest rate announcement of 2023. Three more are scheduled to follow this year.
In 2022, the bank hiked its interest rate seven times. Then, in January 2023, another increase followed, bringing the key rate to 4.5%. The central bank held its key rate at 4.5%, precisely as experts predicted, until June 7, when it was raised to 4.75%.
These hikes are primarily aimed at relieving inflation. Canada’s inflation rate fell to 3.4% in May, but Statistics Canada reports that consumer spending has remained high.
Paired with the fact that June already brought a rate hike, experts aren’t sure if we’ll see another 25-basis-point spike or a rate hold.
Ratehub.ca co-CEO and president of CanWise mortgage lender James Laird shared his thoughts with Daily Hive.
“If the Bank hikes the policy rate by 25 basis points, variable mortgage rates will move up immediately,” said Laird in an email. “The bond market will also move, which will cause fixed mortgage rates to go even higher.”
Laird advises planning for the worst but hoping for the best.
“This means that anyone with a variable-rate mortgage or home equity line of credit (HELOC) should be budgeting for a rate hike.”
He suggests variable-rate holders with floating payments budget for their mortgage payment if their mortgage rate goes up by 25 basis points.
“If you are shopping for a home, get a pre-approval to hold today’s fixed rates for up to 120 days,” Laird said. “If your mortgage is up for renewal within the next year, it’s a good idea to hold a rate with a new lender now.”
Laird believes this is the right move because you can break your existing mortgage if rates jump up further. Switch to that new lender before your rate hold expires to lock in the lower rate.
“A hike will put downward pressure on home prices, which have rebounded since the beginning of the year, and cause transactions to slow over the summer,” the CEO noted.
Ratehub has shared an example to show what would happen if a 25-basis point increase is announced on Wednesday. The hypothetical home price used here reflects Canadian Real Estate Association (CREA) averages for Ontario.
“According to Ratehub.ca’s mortgage payment calculator, a homeowner who put a 10% down payment on a $928,897 home with a five-year variable rate of 5.80% amortized over 25 years (total mortgage amount of $861,923) has a monthly mortgage payment of $5,413,” the mortgage brokerage noted.
“If the Bank of Canada announces a 25-basis point rate increase next week, their variable mortgage rate will increase to 6.05%, and their monthly payment will increase to $5,540.”
Laird clarified that the homeowner would pay $127 more per month, or $1,524 per year, on their mortgage payments.
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