Prime Rate Increase +0.25%
We wanted to take a moment to share an important change in the market that may affect your adjustable or variable mortgage. The Bank of Canada has recently raised interest rates by 25 basis points, leading to a reset of rate expectations. This decision increases the likelihood of further rate hikes in the near future. As a result, it is important for us to review the implications for your mortgage and how this could impact your payments if you have an adjustable or variable rate mortgage.
The prime rate has increased by 0.25%, and is now 6.95%. The following chart shows what your new interest rate might be based off your discount.
| YOUR DISCOUNT | YOUR RATE (Prime 6.95%) |
| Prime – 1.00% | 5.95% |
| Prime – 0.90% | 6.05% |
| Prime – 0.75% | 6.20% |
| Prime – 0.50% | 6.45% |
| Prime – 0.40% | 6.55% |
| Prime – 0.20% | 6.75% |
Adjustable Rate Mortgage
If you have an adjustable rate mortgage, the increase in the prime rate will directly affect your monthly payment. With an adjustable-rate mortgage, your mortgage payment will change when interest rates change. If interest rates go up, your mortgage payment will go up. If interest rates go down, your mortgage payment will go down. This ensures that your payment remains in line with the prevailing interest rates.
To give you a clearer picture of how this change will impact your specific situation, please refer to the table below illustrating the increase in mortgage payments per $100,000 of your outstanding mortgage balance.
| MONTHLY | $14.00 increase per $100,000 |
| SEMI-MONTHLY | $7.00 increase per $100,000 |
| BI-WEEKLY | $6.50 increase per $100,000 |
| WEEKLY | $3.25 increase per $100,000 |
Variable Rate Mortgage
For those of you with a variable rate mortgage, you might have been enjoying the stability of a static payment despite fluctuations in the prime rate. However, it’s important to note that the recent increase in the prime rate will affect the duration of your mortgage amortization. While your monthly payment may remain the same, the extended amortization period will result in increased interest payments over time.
Now, we want to assure you that you have options. We understand that this change may raise questions and concerns about your mortgage and financial situation. That’s why we strongly encourage you to reach out to our dedicated team of mortgage experts. We are here to help and provide personalized advice based on your unique circumstances.
Here are a few options you can consider:
1. Continue with your Adjustable/Variable Rate
If you’re comfortable with market fluctuations and believe that the variable or adjustable rate mortgage aligns with your long-term financial goals, you can choose to stay on this path. We can discuss strategies to mitigate the impact of rate increases and help you make informed decisions.
2. Refinance and Consolidate Debt
Another option worth considering is refinancing your mortgage and consolidating any outstanding debts. By doing so, you may be able to secure a lower overall monthly payment and simplify your finances. Our team can guide you through the refinancing process and explore potential savings.
3. Lock in Todays Fixed Rates
Given the recent increase in the prime rate, locking in a fixed-rate mortgage could provide stability and certainty. Fixed-rate mortgages allow you to enjoy a consistent monthly payment throughout the term of your mortgage, regardless of future rate fluctuations. We can discuss the current fixed-rate options available to you and help you assess the potential benefits.
Remember, these options are not one-size-fits-all, and it’s important to evaluate them based on your individual circumstances. Our team is here to provide personalized guidance and assist you in making the best decision for your financial well-being.
More on The Bank of Canada’s Decision on Prime Rate Increase…
The Bank of Canada highlighted that underlying inflation remains high, consumption growth is strong, housing market activity has increased, and the labor market remains tight. However, there are uncertainties regarding inflation, and the Bank’s outlook suggests that more rate hikes may be on the horizon.
In the coming months, various indicators and events will influence rate hike expectations, such as employment data, inflation figures, and consumer inflation expectations. It is important to maintain a long-term perspective and consider historical trends, which suggest potential improvements in 2024.
While the current rate hikes may introduce uncertainty, it is worth remembering that restrictive monetary policy is ultimately beneficial for the economy in the long run. Although we have not reached the breaking point yet, it is approaching, and this rate hike is a step towards a healthier economic future.
If you have a variable adjustable rate mortgage and have any questions or concerns, please contact us today!
For more information check out Mortgage Logic News here.
