Date Posted: July 12, 2023
The Rate Increase
In a recent announcement, the Bank of Canada raised its target for the overnight rate by ¼% to a new overnight rate of 5%. This decision also led to the Bank Rate being set at 5% and the deposit rate at 5%. The bank is also maintaining its policy of quantitative tightening.
While most of the mortgage and housing industry were hoping to see another rate hold; another increase was expected. In Canada, the economy performed better than anticipated in the first quarter of 2023, with a GDP growth rate of 3.1%. The demand for services continued to rebound, and there was an increase in spending on goods sensitive to interest rates. Additionally, the housing market activity has recently picked up.
What Does This Affect?
The Bank of Canada’s target overnight policy rate affects the interest you pay from lenders like banks. The higher the overnight rate, the more interest you’ll pay. The increase of 0.25% means that for some variable-rate mortgages more of the money you pay each month will be going to interest rather than the principal while other variable-rate mortgages will see an increase to the monthly payment.
Getting Back on Track
The bank predicts Canada’s economy grew by 3.6% in 2022, slightly stronger than was projected in October. Inflation has declined from 8.1% in June to 6.3% in December. Year-over-year measures of core inflation are still around 5%, but 3-month measures of core inflation have come down, suggesting that core inflation has peaked.
If you have questions about your own mortgage, and the best strategy for you, please contact your broker today.
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