Variable Rate Mortgage Rates Going Up - The Rob Campbell Mortgage Team

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  • Variable Rate Mortgage Rates Going Up

    They went and did it again.

    The Bank of Canada (BoC) raised the Overnight Lending Rate by 0.25% this morning. It now sits at 1.50%

    Here is the formal announcement from the BoC (littered with fancy economy jargon).

    What is the Overnight Rate?

    The central bank offers a particular interest rate, and big banks in Canada can borrow from the Bank of Canada at that rate. If the BoC’s rates go up, then all other interest rates typically go up along with it.

    Why does this affect me?

    Well, because Banks and Mortgage lenders want to make a specific amount on their money and they will increase a variable rate to keep their margins tasty. Variable rates are not just for mortgages.

    I have a Fixed Rate Mortgage, do I need to be concerned?

    Nope, all good. Steady as she goes. But if you have a Secured Line of Credit running a big balance, or a lot of Credit Card debt, then this will affect you.

    Who will be impacted by this increase?

    The cost of debt in general will go up. Variable Rate mortgages, student loans or student lines of credit, and of course credit cards, can become more expensive due to their pricing being based on the prime lending rate of the Bank it is held with. But your savings, like bank accounts and government bonds, can produce better returns as well….if they decide to pass the savings on to you. 🙂

    Is the sky falling?

    I really don’t think so. I think there will be future rate hikes to come, but this is to calm down rapid growth and to tame inflation. Internationally speaking, we have it fairly good when it comes to the cost of debt. This picture shows some of the other G20 countries compared to Canada.

    mortgage rate chart 2018

    If you have a Variable Rate mortgage, or a Secured Line Of Credit, be sure to top up your monthly payments to offset any increase in interest. Most lenders will allow a monthly top up along with annual bulk payments.

    I still feel that staying the course with a Variable Rate mortgage is the right path to take. The compounded savings, along with a drastically lower penalty calculation, still make it a strong choice.

    To be clear, as of right now (Wednesday July 11 at 11 a.m.), no lender has increased their Prime rate. 

    If you want to talk further about the rate increase or your debt, please book a call with me so we can go over your questions. You can book directly into my calendar right here.

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