01/26/2023
Hello Everyone,
some of you may have see the new rate change this morning.
The Bank of Canada has for the eighth consecutive time this year, increased its target overnight benchmark rate, and here are the highlights:
The Canadian Economy
The Bank estimates Canada’s economy grew by 3.6% in 2022, slightly stronger than was projected in the Bank’s Monetary Policy Report in October, however it projects that growth is expected to “stall through the middle of 2023,” picking up later in the year
The economy remains in “excess demand” and the labour market remains “tight” with unemployment near historic lows and businesses reporting ongoing difficulty finding workers
On Inflation
Inflation has declined from 8.1% in June to 6.3% in December, reflecting lower gasoline prices and, more recently, moderating prices for durable goods
Short-term inflation expectations remain elevated and while year-over-year measures of core inflation are still around 5%, 3-month measures have come down, suggesting that core inflation has “peaked”
Looking Forward
The Bank of Canada noted that “If economic developments evolve broadly in line with (its) outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.” However they did also remark that 'Canadians will have to wait and see as it remains resolute in its commitment to restoring price stability for Canadians.”
To Note
With the prime lending rate increasing, it is important to know whether your variable rate mortgage is a true variable, or an adjustable-rate mortgage. An adjustable-rate mortgage (what we recommend) has the payment directly tied to the prime lending rate. If the rate increases than the mortgage payment follows and vice versa.
A true variable has a static payment regardless of the prime lending rate. However, as the prime rate increases the amount of money going towards interest compared to principal is increasing.
If it increases so much that your payment is no longer covering the interest portion of the mortgage you go into what is called reverse amortization and your mortgage length actually increases. This is called the trigger point and it is noted over 50% of people in variable rate mortgages have hit their trigger point due to the rising rates.
If this sounds like the mortgage you are currently in or if you are unsure what mortgage you are in, please contact us and we can take a look and recommend the best options. Fixed rates have also dropped since the last meeting so it could be a good time to look at converting.
Have any questions to call your Mortgage Broker or call me (403)
and I will direct you to some of the best ones in town.
