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.
In a surprising move, the Bank of Canada announced a second increase to their overnight lending rate this morning. The Bank’s benchmark interest rate now sits at 1 percent – up by 25 basis points since their last increase in July of this year. Many Canadian Economists did not expect another increase until October 2017 – however, the Bank has reported unanticipated growth in the Canadian economy since the last rate announcement.
According to the central Bank, "recent economic data have been stronger than expected, supporting the bank’s view that growth in Canada is becoming more broadly based and self-sustaining.” Solid employment and income growth were also reported along with “robust” consumer spending.
In line with the Bank’s projections in the July Monetary Policy Report, inflation has remained below the 2 percent target with a slight increase in both core measures and total CPI inflation. GDP is currently higher than anticipated, and economic growth is expected to continue at a moderate pace throughout the latter half of 2017.
The housing sector has seen some cooling in certain markets, attributed largely to recent changes in legislation – however, the more long-term impact of these changes will continue to be assessed and evaluated. In their statement today, the bank has said that "given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates."
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?
Many Analysts are predicting further increases to the Bank’s benchmark interest rate within the next year – however, the Bank insists that future rate hikes will not be “pre-determined” and will unfold based on the most recent economic data available.
If we do see further increases to the Bank’s rate, your variable rate mortgage payments would increase correspondingly. 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.
The next rate announcement will take place on October 25, 2017 along with the release of the Bank’s next Monetary Policy Report.
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