Today marks the 𝐥𝐚𝐬𝐭 Bank of Canada (BOC) Rate Review for 2022, and what a year it has been! This morning, the BOC announced their decision to increase the Overnight Rate by another 0.50%.
Typically, Prime Rate tends to follow suit a day or two later. In January Prime was at 2.45%. Since then we have seen 7 increases (+4.00%), bringing the Prime Rate to today’s value of 6.45%.
Many economists and home consumers are hoping this is the last increase for some time. That said, 2022 has proven that the real estate market and interest rates can be quite unpredictable.
The Impact Prime Rate Has On Your Mortgage
Fixed Rate Mortgages = Everything remains the same, with no change in payment.
Adjustable Rate Mortgages = Your payment will increase according to the Prime Rate. You will likely receive a letter in the mail outlining your payment increase amount.
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.
For an adjustable-rate mortgage, here is a comparison that shows the difference between yesterday’s Prime Rate (5.95%) and today’s Prime Rate (6.45%).
As you can see below, there is an increase of roughly $154/m on a $500K insurable mortgage
*This payment comparison is for illustrative purposes only. It is not a commitment to lend or pre-approval. Rates are subject to change without notice.
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.
Mortgage Tech
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