On September 6, 2017 the Bank of Canada increased the overnight rate by 0.25%, causing prime lending rates at financial institutions to increase by the same amount.
If you have a variable rate mortgage…
The impact this increase will have on your mortgage payment will depend on the size as well as the amortization period, but you can estimate the increase using this simple rule-of-thumb:
A 0.25% rate increase will add $13 to your monthly payment for every $100,000 in mortgage balance (assuming 25 year amortization).
This means that if you have a mortgage with an approximate balance of $300,000, your monthly payment will increase by roughly $39. The effect of the rate increase lessens as your amortization decreases, but the rule-of-thumb will be pretty accurate for most mortgages.
This rate increase was a bit unexpected, as most banks and economists were predicting a rate increase later this fall. However, economic reports that were released in late August summarizing Canada’s economic performance over the first half of 2017 showed stronger than expected growth, which prompted the rate hike in an effort to stay ahead of possible inflation. Given the increase now, it is less likely that there will be another rate increase later this year unless third quarter data (which will come out in October) shows unexpected job growth or continued inflation pressures.
If you have questions about your variable rate mortgage, please let us know. We are always here to help.
The next Bank of Canada rate announcement is scheduled for October 25, 2017. More Bank of Canada News