The Bank of Canada finally increased its bench mark rate to 0.75 percent (up 0.25 %) after seven years of leaving the key interest steady and even reducing it a couple of times. Typically, any increase or decrease in the Bank of Canada rate has a direct impact on the banks’ prime rates which they use to set interest rates for variable-rate mortgages and other loans. All five major Canadian banks did increase their prime lending rates by the same 25 basis points (0.25%). While this doesn’t sound like great news, the fact is that the Canadian economy is doing better than expected in 2017, employment is strong, mortgage defaults are at record lows and interest rates, both variable and fixed, are still close to historical lows.
What this means for you.
If you currently have a variable rate mortgage, home equity line of credit, or a combination of both, you will see an increase in the interest you pay and depending on the type of variable rate mortgage you may also see an increase in your payment. If you have a fixed rate mortgage you won’t see any change for the remainder of your term but you might face higher interest rates at the time of renewal.
Interest rates are just one component of your mortgage. Other factors such as amortization (number of years to pay off your mortgage), payment frequency, and prepayment options all have a significant impact on the amount of interest you actually pay.
Homeownership is an important long-term decision that can greatly enhance your overall financial well-being and having access to the right mortgage solution is just as important. With current speculation that the Bank of Canada might increase the benchmark rate one more time this year and with even more mortgage rule changes, it makes sense to get a pre-approved mortgage in hand before shopping for your first or next home.
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