The Bank of Canada raised its key interest rate today–as most people expected. Canada’s prime rate jumped 0.25% as a result. It’s the first such increase in over 13 months.
Variable rate mortgages also rose 0.25%. (Although you may still be able to get a 5-year variable under 5.25%.)
If you have a variable now, and don’t have a “hold-the-payment” option, here’s an example of how your payments might rise.
While adjustable rate mortgages are rising, however, fixed rate mortgages could potentially drop in the near term. That’s because Canada’s key bond rates fell about 1/10% today. Apparently traders now think the Bank of Canada is less inclined to keep raising rates after their next meeting.
In a statement today, the Bank of Canada said, “Some modest further increase in the overnight rate may be required to bring inflation back to the [2%] target over the medium term.”
The Bank of Canada’s next interest rate meeting is September 5. Economists surveyed by Bloomberg generally expect another 0.25% hike at that meeting. Most feel that rates will then hold pat for the rest of the year.
You can read the Bank of Canada’s statement here.
Last modified: April 25, 2014
Hi,
Just wondering – I compared the newspaper section (where they list mortgage rates) from 1 month ago to yesterday but the variable rate was the exact same – does/has the bank of canada rate increase or affect the variable rate immediately or is there a lag. Thanks
Hi Reg,
Variable rates are based on prime rate. Prime rate is based on the Bank of Canada’s overnight lending rate.
The Bank of Canada just raised its overnight rate to 4.50% from 4.25% on July 10. Prime rate rose quickly thereafter at most Canadian lenders.
As a result, virtually all variable rate mortgages are now 1/4% higher than they were a month ago. I’m not sure what rates you saw in the newspaper but most variables are now near 5.35-5.40%.
Have a great evening,
Melanie