Although house prices have dipped month-over-month (indicating some returning balance to the marketplace), recent news suggests purchasing a home could get more expensive.
Recently (and after much accurate speculation), the Bank of Canada (BoC) hiked its interest rate from 0.5 per cent to 0.75 per cent.
As for what prompted the expected increase, the BoC says recent data indicates that the economy is growing at an encouraging pace, even though inflation has been “soft.” As far as soft inflation is concerned, the BoC says it believes the trend will rectify itself in time.
“The Bank acknowledges recent softness in inflation but judges this to be temporary,” the release reads. “Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time.”
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The BoC pointed out that the global economy appears to be getting stronger, despite the U.S. experiencing a ho-hum first quarter. That said, the financial institution did acknowledge that geopolitical uncertainty clouds the global outlook, particularly in terms of trade and investment.
But while global affairs are top of mind for many, Oakville, Burlington and Milton residents might be wondering how the increase will affect their mortgages–especially if they’re about to purchase a hope or renew their existing mortgage.
This is an important question, especially since The BoC acknowledges that Canada’s robust economy has been fuelled by household spending.
“Household spending will likely remain solid in the months ahead, supported by rising employment and wages, but its pace is expected to slow over the projection horizon,” the release reads.
In short, higher interest rates typically translate to higher mortgage payments. While various lenders may differ in some respects, most major financial institutions–think TD, CIBC, RBC, Scotiabank and BMO–stick to fairly uniform rates (and for the past few years, those rates have hovered under three per cent). Since BoC’s interest rates tend to be trendsetting, homeowners will be paying more come mortgage renewal time.
To be clear, the rate hikes will not affect your payments if you’re in the middle of your mortgage term. So if you’re currently paying 2.4 per cent on your year-old, five-year fixed rate mortgage, you will get to enjoy four more years at that rate.
Homebuyers who have yet to make a purchase will be affected by the rate hikes. That said, since the CMHC typically recommends that borrowers qualify at higher interest rates, this move likely won’t prevent otherwise financially sound buyers from entering the market (we’re not talking a jump from two to 12 per cent here, after all).
If you’re about to renew your mortgage and have concerns about rate hikes, you can figure out how much more you’ll be paying with this mortgage calculator (courtesy of RateHub and Global News).
You should also note that the increase could affect your line of credit (if you carry a balance). If you use fixed-rate credit cards, your payments should not be affected.