On Wednesday, October 28, the Bank of Canada raised its key interest rate by a quarter of a percentage point, from 2.25% to 2.5%. If you own a home, are thinking about buying or have a mortgage renewal on the horizon, you might be wondering what this means for you.
Here's a clear look at what changed, who it affects and how to plan around it.
Why the Bank Raised Its Rate
The Bank's focus is keeping inflation in check. Inflation has been running around 3% since April, and the Bank expects it to reach about 3.5% by the end of the year, largely because of high fuel prices that raise the cost of producing and shipping goods. The increase is meant to keep those higher costs from spreading through the rest of the economy.
The Bank also said it will proceed carefully from here. Its next decision is on December 9.
If You Have a Variable Rate Mortgage
Variable rate mortgages are tied to your lender's prime rate, which usually moves in step with the Bank of Canada. Depending on your mortgage, you'll see either a higher monthly payment or more of each payment going toward interest.
To put it in perspective, on a $400,000 mortgage with a 25 year amortization, a rate going from 4.00% to 4.25% adds roughly $55 a month. It's a good moment to check in with your lender so you know exactly how your mortgage is set up.
If You Have a Fixed Rate Mortgage
Your rate and payment stay exactly the same until your term ends. This week's announcement doesn't change your mortgage at all.
If Your Mortgage Is Renewing in the Next Year
This is where a little planning goes a long way. Many lenders will let you lock in a renewal rate several months before your renewal date, which gives you time to compare offers instead of simply signing the first renewal letter that arrives. A mortgage broker or your lender can walk you through your options.
If you're wondering whether renewing, refinancing or making a move makes the most sense for you, our post My Mortgage Is Renewing This Year. Should I Sell, Refinance, or Stay Put? is a helpful place to start.
What It Means for Buyers
A quarter point change has a modest effect on what you can afford, and good homes come to market in every season. The most useful step is getting a mortgage pre-approval with a rate hold. Most lenders will hold a rate for several months, which gives you a clear budget and peace of mind while you shop.
From there, we'll help you focus on homes that fit comfortably within your numbers, so you can make your decision with confidence.
What It Means for Sellers
Buyers are paying close attention to their monthly payments, which makes thoughtful pricing especially important. Homes that are well prepared and priced in line with recent sales in their neighbourhood continue to draw serious interest. We'll look at the latest numbers for your area together and build a plan that fits your goals and your timeline.
Keeping It in Perspective
Rates move up and down over time, and a single announcement is just one piece of the picture. Your own plans, your budget and the community you want to call home matter far more than any one rate decision.
Let's Talk It Through
If you have questions about how this change affects your plans to buy, sell or renew, we're always happy to talk. Give us a call at 902-229-3452 or email Mike@sellingabovethecrowd.com. We'd love to help.