Eight times per year, the Bank of Canada meets to determine what the base lending rate should be. Any change to this industry benchmark indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This information is also a good indicator of the current status of the Canadian economy.
The Bank of Canada raised its trend-setting interest rate to 1.25 percent today, marking the third 0.25 percentage point increase since July of 2017.
The move matches the expectations of most economists and investors, who had been anticipating another hike after two consecutive blockbuster jobs reports for November and December. The economy churned out just under 160,000 net new jobs over the last two months of 2017, pushing Canada’s unemployment rate to 5.7 per cent, the lowest level since comparable record-keeping began in 1976.
The global economy continues to strengthen, with growth expected to average 3 1/2 per cent over the projected horizon. Growth in advanced economies is projected to be stronger than in the Bank’s October Monetary Policy Report (MPR). In particular, there are signs of increasing momentum in the US economy, which will be boosted further by recent tax changes. Global commodity prices are higher, although the benefits to Canada are being diluted by wider spreads between benchmark world and Canadian oil prices.
The Bank struck a cautious note in the statement accompanying its interest rate announcement. Despite an expected “small benefit” to the Canadian economy from strong growth in the U.S., concerns about the future of NAFTA continue to weigh on Canada’s economic outlook, it warned.
Moving forward, the bank predicted household spending and investment to gradually contribute less to economic growth, given the higher interest rates and stricter mortgage rules. It predicted Canada’s high levels of household debt would amplify the effects of higher interest rates on consumption.
What does this mean for my variable-rate mortgage?
Because the cost of borrowing will be more expensive moving forward, you can expect Canadian lending institutions to increase their respective prime rates within the next few days. This means that you will soon see an increase in your mortgage payments. If you have questions regarding the specifics of your mortgage and how much your payments will be moving forward, click here to email your Broker.
Is now a good time to switch to a fixed interest rate?
Because every financial situation is different, a free consultation with your Broker is the absolute best way help you determine whether locking in at a fixed rate would be beneficial for you. This is heavily dependent on the specifics of your mortgage, and we encourage you to speak with your Broker to discuss the right direction moving forward for your particular situation. Some of the factors to consider include:
- What your current variable rate is
- How much time is left on your mortgage term; and
- What fixed rates are currently being offered
The next rate announcement will take place on March 7, 2018.
For up-to-date information on interest rates and other mortgage news, be sure to follow Innovative Mortgage Solutions on Facebook or Twitter. If you have questions about your mortgage or what this information means for you, please feel free to contact our office and speak to one of our Mortgage Brokers today!