Canada's Condominium Magazine

How does Bank of Canada rate increase in September impact your mortgage?

Two consecutive increases from the Bank of Canada have brought the rate to 1 percent, which inspired the major banks to raise their primes immediately. RBC raised first, matched by CIBC, Bank of Nova Scotia and Bank of Montreal, all at 3.2 percent.

Dave McKay, CEO at RBC estimated the rate hike will add $100 million in revenue to RBC’s operations (according to Bloomberg).

Here’s how the rates now look (Ratehub.ca):

 

New mortgage rates from the major banks in Canada after the rate increase by the Bank of Canada Sept 7, 2017. Infographic from Ratehub.ca. NOTE: When comparing rates, its important to realize these are the rates the bank is advertising. Banks can alter rates at their discretion on individual mortgages.

 

Good economy and employment

Why did the Bank of Canada move to raise rates in September rather than in October as many analysts expected? Interest rates have been low for longer than expected run. Canada’s economy grew again in the third quarter, against expectations it would slow somewhat. Other economic factors the Bank of Canada had to work with included:

  • Q2 Real GDP growth 2017 UP 4.5%
  • Toronto’s employment growth UP 1.3%
  • Toronto’s unemployment rate in July 6.9%
  • Inflation Rate in July year-over-year increase 1.2%

Mortgage delinquency rates down

Another factor contributing to the big picture is the declining rate of delinquency on mortgages — largely a factor of high, stable employment. In addition, Canadian’s “mortgage borrowing power” is at an all time high due to higher family incomes and relatively low interest rates. [See our previous story on Mortgage Borrowing Power>>]

Also considered in any economic overview impacting Bank of Canada rates is the “health” of the oil patch. One of the downward pressures in the past had been the oil price drops in 2015. If the economy and other factors continue as predicted, Douglas Porter, chief economist with BMO Financial Group predicts Bank of Canada rates may hit 2 percent by next year.

“The somewhat aggressive hike and the upbeat view on growth point to more tightening than we previously expected over the next year,” Porter said.

Calculate your mortgage payment change

Is it time to lock in variable rate mortgages? How much does the increase impact the average mortgage in the Toronto area — currently at around $350,000? For your convenience, try calculating the change below in Ratehub’s Mortgage Payment Calculator below:

 

 

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