What Buyers Really Need to Know About the September 2022 Bank of Canada Policy Rate Hike
After a quiet August, the Bank of Canada has started ‘back to school’ season with a highly anticipated press release regarding the prime rate. They made the announcement on Wednesday September 7, leaving potential home buyers with plenty to ponder. Are you among those who are considering getting a mortgage for what’s left of 2022? Will the latest update from the Bank of Canada impact your decision? Here’s what you need to know!
Interest Rate Hiked by 75 Basis Points
In their July of 2022 announcement, the BoC raised the prime rate by a full 1-percentage point to 2.5%. It was the biggest hike they’d made since 1998. Subsequently, some assumed that it would be their final increase of the annum. Others expected another increase, but by a small amount. Well, while the BoC didn’t drop a bomb like they did in July, they did make a statement with their recent announcement. That statement, was that they’re not done yet The BoC has raised the rate once again, by 75 basis points, or three-quarters of a full percentage point.
It has been an aggressive 6-months for the Bank of Canada in their move to cool red-hot inflation, which is at its highest level in decades.. If you recall, the prime rate was just .25% at the beginning of the year. It now sits at 3.25 percent. It’s a necessary evil (so to speak) but that does little to comfort home buyers who are entering the market while this is all going down.
Variable Rates to Rise, But They Are Still Affordable
Variable mortgage rates are tethered to the Bank of Canada prime rate. The positive correlation infers that if the latter rises, the former rises too. Those currently holding variable loans can expect an increases in payments in the days ahead. This may not be ideal for them, but it ultimately doesn’t change as much for you, given that you have yet to commit to a mortgage. On the surface it may seem as if you can afford less. However, with some smart planning you can balance out the perceived increase (compared to what you would pay for a mortgage months ago) by working with the right mortgage broker. If buying a home in the BC Southern Interior, you’ll be pleased to know that Carloni Mortgage Brokers can unlock access to lower unadvertised variable mortgage rates. In doing so, any increase in comparable rates is mitigated, and you’ll ultimately end up paying the same (read: lower) amount than if you went out and got a mortgage on your own before the BoC began its campaign to fight inflation. At press, RBC is marketing their variable mortgage rate at 5.250% and CIBC is marketing theirs at 5.20%. Let’s find out if you can get better than that. Call 250.493.9111.
Fixed Rates to Rise, But the Right Broker Helps
Unlike variable rates which are tied to the prime rate, fixed rates have a positively correlated relationship with quantitative tightening. Quantitative tightening reduces the Federal Government’s balance sheet by either selling (vs buying) government bonds, or by letting the bonds mature and removing them from its cash balances. This removes money from the Canadian economy and leads to higher fixed interest rates. In this week’s Bank of Canada announcement, it was stated that they would continue with quantitative tightening, so fixed rates are indeed expected to rise. But once again, you can remedy this by working with the right mortgage broker. In addition to variable rates, a broker can get you access to lower-than-advertised fixed mortgage rates, which will weaken the impact of rising rates due to the BoC’s most recent move.
If you are buying a home in Penticton or elsewhere in the BC Southern Interior, there is only one thing left to do – give us a call.
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