Loving the headlines this morning.

Here’s just a couple of them:
Bank of Canada hikes rate by biggest amount in 20 years in push to tame red hot inflation
Bank of Canada announces .5% increase, the first oversized hike in decades

As we know the media loves a good headline however when you break it down we all knew we couldn’t borrow cheap money forever.  When the pandemic first started the Bank of Canada Prime rate had remained unchanged at 3.95% since October 2018. Then March 2020 and COVID happened and in that one month the Bank of Canada reduced the Prime Rate by 1.5% over the course of the month where it then sat unchanged for 2 years.

Now is not the time to lock into Fixed Rates or panic!  If you’re looking at the uninsured variable vs fixed interest rates there is approximately 1.5% difference and you would be giving this extra money straight to the bank.  Of course if you consult a banker, they’ll tell you to lock in however when you lock into a fixed rate that’s when the banks make money.  When interest rates are higher, banks make more money as they take advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing.

Let’s remember the math, for every .25% increase it increases your mortgage by $12/month for every $100,000.  See below for a table for an example of variable vs fixed rates and what the difference per month would be.

If you’re looking for a history of the Bank of Canada Prime Rate check out this easy table to review what the Prime Rate has been since 2004.

Take note as well that if you’re about to jump into the Spring Market with a purchase if you choose to go Fixed you may be reducing the amount of mortgage money that you qualify for as you’ll be forced to use the contracted rate +2% as the Stress Test rate vs 5.25%.  If you earn approximately $100,000 this would reduce your purchasing power from $474,058 to $446,088.  Check  out a video that I shared on LinkedIn.

As always, if you have any questions don’t hesitate to reach out to me and book in a call.

Happy Wednesday,
Kimberly