UPDATE: BOC Increases Overnight Rate +0.50%
Just as we anticipated, another increase for the Bank of Canada (BOC) Overnight Rate. The rate increased by 50 Basis Points, which is an increase of 0.50%.
What does this mean for Prime Rate? Well, most people don’t realize that the BOC Overnight Rate & Prime Rate are not the same thing. However, Prime tends to go up and down with the Overnight Rate changes.
So within a day or two, most lenders will have updated their Prime rate to reflect the recent increase of 0.50%.
The Impact Prime Rate Has On Your Mortgage
Pre-Approval: With this recent increase, you’re pre-approval numbers are likely to decrease. Be sure to discuss these changes with your mortgage professional before moving forward with an offer to purchase.
Fixed Rate Mortgages = Everything remains the same, with no change in your payment.
Adjustable Rate Mortgages = Your payment will increase according to the new Prime Rate minus your discount (ex. Prime – 0.90%). You will likely receive a letter in the mail outlining the change in your payment.
Static Variable Rate = Your payment will stay the same, but the portion of interest paid to the lender will change. If you’re in a Static Variable Rate Mortgage, it’s important to talk to your mortgage expert about your “Trigger Rate”. A Trigger Rate is when your whole payment becomes interest and no principal is being paid off, the lender will need to adjust your payments accordingly.
Even though your payment doesn’t change with a Static Variable, it’s still a good idea to manually change it yourself. Why? If you want to keep paying down your mortgage and not stretching out your amortization, you’ll want to increase your payment as Prime increases.
Payment Comparison From Prime At 5.45% vs. 5.95%
For an adjustable-rate mortgage, here is a comparison that shows the difference between yesterday’s Prime Rate (5.45%) and today’s Prime Rate (5.95%). As you can see below, there is an increase of roughly $144/m on a $500K insured mortgage.
If you have any questions or concerns, don’t hesitate to reach out. I’d be happy to go over your options with you and help you find a mortgage that you’re most comfortable with.
Luc & Sarah Mathieu
Mortgage Tech
Licensed Mortgage Brokers Powered by BRX Mortgage
C. 250-320-5555
