The Bank of Canada increased the overnight rate to 4.75%, a .25% increase.
Bringing the prime rate to 6.95%
This is one update I dreaded writing. I feel like a passenger on a bus with no driver; therefore, offering directions is nearly impossible.
So let’s start with the facts:
- Our five-month inflation deceleration came to a halt as we saw inflation increase by .10% last month.
- The increase in headline inflation can be primarily attributed to rising rents and higher mortgage interest costs – figure that out!
- The BOC remains resolute in its commitment to restoring price stability for Canadians.
- Over the last four months, not much has changed, there was no housing supply, and we still need more.
- We have yet to see a reduction in spending.
- The following eight categories track inflation.
- Household operations, furnishings and equipment
- Clothing and footwear
- Health and personal care
- Recreation, education and reading
- Alcoholic beverages, tobacco products and recreational cannabis.
- If the data remains firm over the coming weeks, another .25% hike is likely in July ~ BOC.
What does this mean for you?
Variable and Adjustable rate holders will see an increase in their monthly payments. For every $100,000 mortgage, you can expect an approximately $15.50 monthly increase.
Therefore a $500,000 mortgage will see an increase of $77.50 monthly.
Where does this leave us, and what are your options?
First, we need to talk about qualifying rates. Qualifying for a variable and fixed mortgage becomes more challenging as the rates increase.
Currently, the 5-year fixed rate with most lenders is at 5.09% (high ratio), which means borrowers have to qualify to carry a mortgage of 7.09% using the stress test.
5-year variable/adjustable rate mortgages are currently at prime – .90% (high ratio), meaning 6.95%-.90% = 6.05%, this means variable rate mortgage holders are qualifying at 8.05%
So what are your options?
Should you move or lock in? Let’s look at the options.
The first obstacle is qualifying; if we get past that part, let’s reconnect and review those options. I will do my best to get to everyone; however, if you have not heard from me by the end of the week – shoot me a text or email, and I will get to you asap.
If qualifying is an issue, we need to look at staying where you are and what those options look like or possibly alternate lenders for the short-term.
TD Clients, specifically.
Last year when the prime rate was on the rise, many clients moved from an adjustable-rate mortgage to a variable-rate mortgage, and we did this when the prime rate was 4.70% or under. This gave many of you payment relief, and now that we are at 6.95% for the prime rate, that relief may be slowly going away. If this is you, then here are some options;
- If you received a letter from TD stating that you have hit your trigger rate or trigger point, call me, and we can work on a strategy to help you through the next few months.
- You are in good shape if you have yet to reach your triggers; however, we should connect to build some backups.
Predictions are difficult as we are only right 50% of the time if we are lucky.
If you are in a fixed rate mortgage and your rate is under 4%, increase your payments – use your pre-payment options and pay down that mortgage as much as you can because there is no clear answer to where rates will be when you are up for renewal.
If you are in a variable rate mortgage (TD for most of you), then connect with me, and let’s look at your options for now and plan for the next year+
If you are in an adjustable-rate mortgage, you’ve been feeling the pain as we ride up on the rate roller coaster, and if we’ve reached your max, let’s also review options.
Having a quick call and pulse-check with us doesn’t cost you a thing. You know me, I will not move you to another lender or suggest that if it’s not the best option for you. Let’s work together, and we will make it through this testing time.
Final thought; if you are coming up for renewal and I’ve called/emailed you, please connect. It’s not a sales call; I want to ensure we protect your renewal rate, and today’s rates are a perfect example of why it’s important to connect.
Click here to read the Full Bank of Canada Statement
The next scheduled date for announcing the overnight rate target is July 12, 2023.
Inflation numbers will be available on June 27, 2023.
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