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Prime Rate Just Went Up 0.5%

Is it time to PANIC? What I think this means for our mortgage market?

Our Take

The Bank of Canada just raised their rates by the largest amount in 22 years. This .5% rate hike now puts the overnight lending rate at 1%. What does this mean for your home buying plans? Should you choose a fixed of Variable Mortage? Watch the video to discover my opinion.

Want to Talk?

If you are wanting to buy a home this year this latest rate increase may be causing you some worry. Schedule a call with our team of professional mortgage brokers. We can walk you through your options and show you the best path forward.


Would you Rather Read?

The Bank of Canada just did something it hasn’t done since May 17, 2000! It raised the overnight rate by 50 basis points, or half a percent. It will also start the process of quantitative tightening later this month, signaling that more rate hikes are in the cards.

This rate increase isn’t unexpected, and it still isn’t cause to panic. Yes, it can be said that the Bank “doubled” it’s rate, but an increase from 0.5% to 1% is still only a half percent increase. Using terms like “Double” is click bait and disingenuous.

Retail Bank Prime – the rate that actually matters to Canadians – will increase from 2.7% to 3.2% as a result of this. That is an 18.5% increase to that rate.

This rate increase now reverses HALF of the rate decreases that we saw back in March 2020 when the COVID-19 Pandemic first swept around the world. So we have room to go for rates to return back to where they were in 2019, and probably a little increase beyond that, which would see the Prime rate higher than it has been since 2009. At least for a period of time.

In rationalizing this move, the Bank singled out the invasion of Ukraine by Russia as a “new economic uncertainty” that is causing supply disruptions, exacerbating ongoing supply constraints and “weighing on activity.”

It is no surprise that we are experiencing very high levels of inflation. Everyone is talking about it. And not just energy costs. Much of this is still a result of supply struggles, the war in Ukraine is only adding to that. However more and more it is also increased demand as our economy recovers in most sectors. The banks suggests that we will see GDP growth this year of 4.2% and 3.2% in 2023. Currently CPI Inflation is expected to average 6% for the first half of the year, whey easing toward the target range at 2.5% late next year and settling around 2% in 2024.

The bank tells us that “With the economy moving into excess demand and inflation persisting well above target…interest rates will need to rise further.”

The exact pace of these increases remains to be seen, but don’t be surprised if the bank raises rates again on June 1 which is the next scheduled announcement.

I am telling clients to expect another 1.5% increase after this current increase. That still leaves new variable rate mortgages below where new 5-year fixed rates are selling for today.

As always, my team and I are here to advise you. To help you find the answers you need. Whether you are looking to refinance your existing mortgage, you are up for renewal soon, or you are looking to purchase in the near future, we would love to hear from you!

Meet The Author

Josh Tagg started his career as a mortgage in 2006. During his award-winning career, he has helped thousands individuals and families secure mortgages for their homes. 

Josh Tagg

Josh Tagg

Owner, Mortgages For Less