Bank of Canada Increases Their Key Interest Rate: How Does it Affect Borrowers?

June 7, 2023: The Bank of Canada has raised its overnight target rate by 25 basis points to 4.75%. 

This is the Bank’s first rate hike since January and was partially anticipated by the market.

The decision to increase the rate was driven by the unexpectedly strong growth in consumption and a rise in inflation during April. The Bank echoed its sentiment that they like to bring inflation back to the target of 2%.

How does this affect borrowers? Check out the chart below to see the payment changes.

Mortgage AmountOriginal PaymentNew PaymentPayment Increase

The above graph is based upon the following:

  • 25 year amortization
  • Variable interest rate going from 5.8% to 6.05%

What can variable rate clients do? 

Existing variable rate clients can reach out to their existing lender to see what their current lock in rate is. This would switch them from a variable rate to a fixed rate.

Borrowers need to also keep in mind that rates may come down more during the remainder of their mortgage term and you can only lock in a fixed rate once.

Also, make sure you’re considering prepayment penalties and your home-ownership goals before locking in. Once you have locked in a fixed rate, if you need to break your mortgage you will likely be incurring an Interest Rate Differential Penalty. 

The next rate announcement is scheduled for Wednesday, July 12, 2023.

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