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Deja Vu

Bank of Canada Raises Rates by 0.5%

 

Is it time to sit tight, or is now the time to find bargains!

Our Take

The Bank of Canada has again raised their lending rate. However the moderation of last years extremely hot housing market might mean that now is YOUR perfect time to enter the market. Watch the video or read our blog below to get our full take.

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We are always here to answer your questions. In this changing rate environment it is more important than ever to work with a qualified mortgage broker. Apply Now or use the form to schedule a call and we can walk you through your options and show you the best path forward.


Bank of Canada Raises Rates!

The Bank of Canada announced today, June 1, 2022 that for the second consecutive rate announcement the overnight rate will increase by a half percent. Prior to the March announcement, the most recent half percent increase was in May 2000.

Let’s quickly remember however that with today’s announcement, the Bank’s rate still sits a quarter percent LOWER than it did on March 1, 2020.

Does this mean that rates are going to continue to soar? Maybe, but probably not. Perhaps that depends on your definition of “soaring rates.”

And what does this mean for fixed mortgage rates? Fixed rates have already increased nearly 3% from their lowest point in February 2021 due to a combination of the Bank stopping its bond purchasing program and external pressures to the bond market including the Russian Invasion of Ukraine.

Fixed mortgage rates tend to follow the Government of Canada 5-year Bond Yield. And while rates are just above the highest point we have seen them in 12 years, recently we have actually seen a few lenders DROP their fixed rates a bit – specifically those that raised higher than their competition – which might be a signal that we have hit the peak of rates. Anyone choosing a fixed rate today is accepting the risk that they may be locking in or near the highest point fixed rates have been in over a decade and the highest they will likely be for a while.

Which brings us back to the Bank of Canada’s rate announcement today. 

Canadian economic activity is strong but thankfuly Housing market activity is moderating from exceptionally high levels, especially in the largest markets of Toronto and Vancouver. Growth is expected to be strong when the data for the second quarter of the year comes in.

So with inflation persisting well above target and expected to move higher in the near term, the bank expects that interest rates will need to rise further. 

Variable mortgage rates mostly move in lock step with changes to the Bank’s rate. With today’s rate hike, a new variable rate mortgage can be had for about 2.75%.  Even with an additional 1.5% increase after today to that rate, which is what the capital markets are projecting,  you are still only hitting the current 5-year fixed rate! And if the prime rate were to increase that much, it is unlikely that it would stay there for long before damaging the economy, which is the opposite of the purpose of the rate hike. 

So, with interest rates having risen somewhat, and housing activity moderating, now might just be the sweet spot to get a new house while others are stepping to the side! Everyone is different, and the recommendations should be tailored to fit you. If you are looking for our advice for you and your situation, please reach out and we are here to help you navigate this tricky time.

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