In today’s interest rate announcement the Bank of Canada (BoC) raised it’s key benchmark rate by 0.75%, which will cause all the consumer lenders to raise their prime rates by the same amount. With most lenders, that means their prime rate will increase from 4.7% to 5.45%.
The prime rate increase will directly affect all borrowers with variable or adjustable rate mortgages and lines of credit. If you have one of these types of debt, you will receive a notification from your lender shortly advising you on the change to your interest rate and the new payment amounts.
What’s the impact for current variable rate mortgage clients?
An increase of 0.75% to prime will cause the typical adjustable rate mortgage monthly payment to increase by about $40-45 per $100,000 of debt. So if your mortgage balance is $400,000, you should expect your monthly payment amount to increase by about $160-180.
If your variable rate mortgage was set up a year or two ago with fixed payments and they have not hit a trigger point so far, this prime rate increase will likely make that happen. See our previous post for more details on what happens when prime increases past your trigger point.
What’s the impact for new mortgage qualification?
If you’re hoping to purchase a new property or refinance your existing mortgage, this prime rate increase will reduce the maximum amount of mortgage for which you can qualify.
The average household income in Canada is roughly $85,000, and so for the average household this most recent prime rate increase will decrease their maximum purchase price by between $30,000-60,000 (depending on the type of mortgage, amount of down payment, etc).
If you have any questions about how this prime rate increase will affect your current mortgage or your ability to qualify for a new mortgage, please book your free, no obligation mortgage consultation today!