Bank of Canada’s 0.25% rate hike means monthly payment hike of $13 per $100,000 mortgage, broker says
The Bank of Canada raised its interest rate from 0.25% to 0.5%.
What does this mean for people with mortgages?
Mortgage broker and real estate agent Gerry Kainth emailed about it when the central bank announced the rate hike on Wednesday March 2.
Note that the increase only affects variable rate mortgages and not fixed rates.
Kainth explained that the 0.25% rate hike means a $13 per month increase in payments for every $100,000 of mortgage.
By way of illustration, the broker quoted a mortgage amount of $500,000.
At a variable rate of 1.55% before the increase, the mortgage payment equals $1,736 per month.
Kainth said that with a new variable rate of 1.8%, the resulting mortgage payment would be $1,796.
That’s a $60 increase.
The Bank of Canada is expected to continue raising rates this year and into 2023…
And so Kainth posed the question of whether or not people with adjustable rate mortgages should lock in with a fixed rate.
He explained that locking in the current fixed rate of 3.29% would mean the mortgage payment on $500,000 would increase to $2,180, or an additional $444.
Kainth suggests sticking with variable rates.
“Although variable rates may increase through 2022, they are still significantly lower than fixed rates,” he wrote.
Kainth explained that it would take six interest rate increases on the floating rate to match the current fixed rate of 3.29%.
“Most banks will continue to push fixed interest rates because they make more money,” Kainth wrote.