For the first time in seven years, the Bank of Canada announced today that it was increasing its key overnight rate by a quarter percentage point (25 basis points) bringing it to 0.75 percent as the economy has staged a broadly based economic expansion this year. In a break from tradition, the Bank has taken this action even though inflation remains well below its target rate of 2 percent. Indeed, inflation has hit its lowest level since 1999. Both Governor Poloz and Senior Deputy Governor Wilkins have emphasized that the Bank must begin to hike rates pre-emptively due to the lagged effect of monetary tightening.

This increase will have an effect on Variable Rate Mortgage holders and anyone with a loan or line of credit that is tied to the Prime Rate.  We’ll see announcements from lenders come out later today and this week as they all adjust their Prime rates.  Currently Prime is at 2.70% and we will see that most likely rise to 2.95% by the end of the week.  Fixed rates started to rise last week as the bonds increased with the speculation of today’s announcement.

If you are concerned with your current Variable Rate Mortgage and would like to explore options with locking in or refinancing at a fixed rate,  CLICK HERE to contact us to start the process. 

Other possible changes may be on there way as well.  This time OSFI–the regulator of financial institutions–is proposing that banks stress test non-insured borrowers at two percentage points above the contract rate. This despite the fact that non-insured borrowers are putting at least 20 percent down on their home purchase. A small BoC rate hike would reinforce the multi-faceted steps to calm the broader housing market.

In a nutshell, the government is doing all it can to tighten mortgage lending rules and if you think you will be needing a mortgage anytime soon, get the process started now as it may not be as easy when any new changes are in effect.

CLICK HERE TO READ A FULL REPORT FROM DLC’S ECONOMIST DR. SHERRY COOPER