12 Jul

Bank of Canada raises rate: what this means to your mortgage


Posted by: Aneta Zimnicki

(July 12, 2017) Today, for the first time in seven years, the Bank of Canada raised their rate by 0.25%. This affects your variable rate mortgages and your secured lines of credit.

What will the banks do?
In the past, the banks matched their prime rate increase in step with the Bank of Canada increase, typically the 0.25% increments. We have not seen a rate increase in 7 years, so the history is old. However, during the last rate drop of 0.25% announced 2 years ago, the banks did not match it, but went down by 0.15%.
Also, somewhat out of line with the pattern, within recent history, one major retail bank set its ‘benchmark prime’ higher than other banks, bumping it up by only 0.15%.
The majority of lenders set their prime at 2.70% before today’s announcement. (Other lenders, including credit unions, may have their own ‘benchmark prime rate’ that may be different. You have to check the fine print with the lender.)
We could assume after today’s announcement that changes to 2.95%, however, we should be cautious with this assumption and continue to monitor what the lenders may do.

What will be my new payment?
Your monthly mortgage payments most likely will go up. A small number of lenders already pre-set your variable rate mortgage at a higher amount when you initiated your mortgage (or you may have set this up yourself). You need to check your documents for this information.

Lenders will mail out a notification about your variable rate change. The payment change may take a few months to take effect due to billing cycles.

Based on a $250K mortgage, 25 year amortization, with typical current variable rate offering, a 0.25% increase in rate is approximately $30/m. On a $10K interest only secured LOC (HELOC), this is approximately $2/m. For investors, this increase can multiply significantly across your portfolio, this is the time to re-evaluate your cashflow.

What next?
This is the beginning of the conversation. You can contact me with your specific mortgage questions and portfolio overview.