22 Jun, 2023
Bank of Canada - interest rate
In The News,Market Insights,Mortgages Comments Off on The Impact of the Latest Bank of Canada Rate Hike

Bank of Canada - interest rate

The Bank of Canada‘s recent decision to increase its key interest rate has sent shockwaves through Canada’s housing market, disrupting the rebound it was experiencing. In an unexpected move, the Bank of Canada announced a 25-basis-point increase in its key interest rate to 4.75 percent on June 7.

Home prices, which were recovering faster than expected, are now under pressure due to this rate hike. In this article, we will explore the implications of the rate hike on variable borrowers and discuss important considerations for those navigating the mortgage market.

Factors Influencing the Bank of Canada’s Decision 

The Bank of Canada’s decision to raise interest rates is influenced by multiple factors beyond the housing market. The overall performance of the economy and inflation targets play a significant role in shaping these decisions. This move is a response to recent data suggesting that the economy is still running hotter than desired. 

Despite the Bank’s efforts to slow the economy, Canada’s labour market remains resilient, adding 41,000 jobs in April. Additionally, the national housing market is showing signs of revitalization after a months-long slowdown.

The Bank mentioned in its statement that it considers the current monetary policy “not sufficiently restrictive” to restore the supply-demand balance and push inflation back towards its 2 percent target. 

While the rate hike was not entirely unexpected, with about one in five economists surveyed by Bloomberg predicting an increase, it does signal a departure from the Bank’s recent stance. Swap market traders had already factored in the possibility of a rate hike by fully pricing it in before the Bank’s announcement, expecting a rate increase by July 12, the date of the Bank’s next scheduled decision.

The Rate Hike’s Effect on Housing Market Recovery 

The housing market had shown signs of stabilization, with notable increases in sales and benchmark home prices in major cities like Toronto and Vancouver. However, the rate hike has raised concerns about the sustainability of this recovery. Industry experts, including James Laird of Ratehub.ca, have expressed their concern about the impact of the rate hike on housing sentiment and the increased stress it will place on borrowers.

Immediate Impact on Variable Rate Borrowers 

Variable rate borrowers will be the first to feel the impact of the rate hike. For example, a homeowner who put 10 percent down on an average-priced Canadian home in April could face an additional cost of $98 per month or $1,176 per year in mortgage payments due to the rate increase. This financial burden may require borrowers to reassess their budgets and potentially seek alternative solutions.

Considerations for Variable Borrowers

  1. Consulting with Mortgage Agents: Variable borrowers should consider consulting with mortgage agents who can provide guidance on navigating the changing interest rate environment. These professionals can assess individual circumstances and explore options such as refinancing or switching to fixed-rate mortgages, helping borrowers make informed decisions.
  2. Reevaluating Financial Plans: The rate hike highlights the importance of reassessing financial plans. Borrowers should analyze their current and future financial capabilities to accommodate increased mortgage payments. This evaluation will help ensure that mortgage obligations remain manageable and align with long-term financial goals.
  3. Monitoring Market Trends: It is crucial for borrowers to stay informed about market trends, economic indicators, and the Bank of Canada’s announcements. By staying proactive and up-to-date, borrowers can better anticipate and prepare for potential future rate changes, allowing them to adjust their strategies accordingly.

Future Rate Expectations 

While the rate hike was not entirely unexpected, borrowers should be aware that interest rates may continue to rise in the future. It is essential to monitor economic conditions and the Bank of Canada’s future announcements to make well-informed decisions about mortgage strategies. Understanding market trends and potential rate adjustments will help you navigate the evolving landscape successfully.

Don’t let the recent rate hike disrupt your financial plans. Contact Cashin Mortgages today and let us assist you in reevaluating your mortgage strategy. Stay proactive and stay ahead of potential future rate changes by monitoring market trends and staying informed about the Bank of Canada’s announcements. Together, we can navigate the evolving landscape and ensure your mortgage obligations align with your long-term financial goals. Take control of your mortgage journey with Cashin Mortgages. Contact us now at 416 655 2274.