The Bank of Canada recently announced a rate increase of 0.25% on June 7th. Making their prime rate 6.95%, a 22-year record high.
The prime rate affects variable-rate mortgages and personal & home equity lines of credit. The increase translates into roughly $15 monthly for every $100,000 worth of mortgage debt for variable-rate mortgage holders.
The Bank of Canada announced this rate hike because of its need to control the excess spending in this economy and the rising inflation rate.
Economists expect to see another rate increase in July of 0.25% again.
But this doesn’t only affect variable interest rates. The fixed-rate impacts mortgage borrowers through bond yields, which determines where fixed rates stand. The rise in the Bank of Canada rate hike and the expectation of another increase next month caused bonds to plunge and yields to surge to a 15-year high. This resulted in lenders increasing their fixed rates over the past several weeks. This impacts new buyers and those with a mortgage renewal coming up.
The earliest rate cuts are now expected in the summer of 2024.
It’s a similar scenario south of the border, where additional rate hikes are now likely despite yesterday’s rate pause by the Federal Reserve. New projections show they expect the benchmark rate to rise by another half a percentage point, while other officials believe it needs to move even higher.
The latest rate hikes have made fixed mortgage rates under 5% a “rare find.” Almost every mortgage product has rates that start at 5% and 6%. It is recommended that anyone in the market for a mortgage act right away to get a rate held for them. We will likely see more hikes to fixed-rate mortgages.
Anyone who is in the market for a mortgage and is still deciding what fixed rate term to choose, we are here to remind you that you can break your mortgage term. It does come with a penalty, but it can be broken. If you lock into a fixed-rate mortgage now, and the rates start to come down in the upcoming years, you are more than welcome to break the mortgage term and lock into a new rate.
Especially those with a variable rate mortgage who are struggling to ride this wave of rate increases are encouraged to talk with a mortgage expert here at Primex Mortgages to see if locking into a fixed rate mortgage makes sense for you.
Trish & The Primex Team
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