For the second meeting in a row, the Bank of Canada (BoC) announced it is holding the overnight Prime lending rate unchanged for the next 6 weeks. The BoC’s overnight lending rate is currently at 4.5%, which means that most banks are calculating their consumer Prime Rate as 6.70%.
In its announcement, the BoC indicated that they continue to assess the impact of the cumulative interest rate increases over the last 12 months. Inflation is falling slowly (which is good) but the job market remains incredibly tight and wages seem to be escalating (which is not good for the long-term battle against inflation). The BoC will be watching these competing factors closely in the upcoming months, and if it starts to appear that increasing wages are driving prices up the BoC will have little choice but to begin hiking rates once more.
In addition to these factors, the BoC will also be monitoring the mortgage and loan markets closely this spring/summer. Most people buy properties in the spring and summer, so these seasons are when the majority of mortgages come up for renewal. There are many homeowners who locked in a 5 year mortgage back in the spring/summer of 2018 at an interest rate of about 3.5-3.75% and they have consequently had a very low monthly mortgage payment for the last 5 years. At renewal these borrowers are going to see their interest rate increase by 1-2% (depending on the term they choose) and their monthly payments will increase by hundreds (sometimes thousands) of dollars. Some economists are predicting this trend will partially offset the factor of increasing wages and ultimately keep the economy cooling.
How will this impact me?
When the Bank of Canada holds its Prime Rate steady, it means that the interest rate on your variable rate loans will remain the same for the next 6 weeks. This means that if you have a variable or adjustable rate mortgage or line of credit, your payment and the amounts allocated to principal and interest will remain unchanged. However, if the Prime Rate changes in the future, it could impact the interest rate, and payment on your mortgage.
It’s always a good idea to stay informed about any changes to the Prime Rate to understand how it may affect your payments.
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