Today’s rate announcement raises rates by 0.50%. Bringing the new Prime Rate to 6.45%.

As your trusted Mortgage Professional, we understand this can be intimidating. Our goal is to accurately lay out the information you need to better understand your current mortgage situation.

Topics covered in our December 7th Rate Announcement Blog:

• A 2022 rate environment re-cap

• Why the Bank of Canada (BoC) continues to increase its rates

• How 65% of Variable Rate mortgage holders have hit their Trigger Rates

• The current Canadian housing market environment

• Balancing unemployment and inflation

   

Today’s Rate Announcement Details

Today the Bank made its final rate announcement for the year by raising the overnight lending rate by 0.50%— Bringing the now Prime Rate to 6.45%, and the TD Prime Rate to 6.60%. As TD's Prime is always 15bps (or 0.15%) higher than other primary lending institutions.

Tiff Macklem, the Governor of the Bank of Canada, explained in this morning’s press conference that their reasonings for the continued rate increases are justified. In summary, he states the following as the main arguments for their decision:

• Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR).

• The economy is still in excess demand in every sector, except real estate.

• Canada’s labour market remains tight, with unemployment near historic lows.

   

A BRIEF 2022 RECAP

• From March 2 to October 26th, 2022, the Bank of Canada raised its policy rate from 0.25% to 3.75%. Equally raising the average Stress test Qualifying rate to roughly 6-7%.

• In October, the Consumer Price Index (CPI) in Canada reached an all-time high of 153.80 points. Prior to this, between 1950 to 2022, CPI averaged 65.84 points.
  
  

• In November, the core-aged employment rate—the proportion of the population who are employed—rose by 0.8 percentage points to 84.7% on a year-over-year basis. This rise was led by core-aged women, whose employment rate reached 81.6% in November.
  
  

• In December, the most recent Canadian Jobs Report data release showed that the Canadian economy grew by 2.9%, double the rate expected by the Bank of Canada in its previous report’s forecasts for Q4.

   

Canada continues to have the highest policy interest rate among the G7 countries after the Bank of Canada’s announcement to raise interest rates another 0.50%— Bringing the Bank of Canada policy rate to 4.25%. 

Many Canadians have been faced with the repercussions of hitting their trigger point

Nearly all mortgages in 2020 & 2021 were Variable rate mortgages with fixed payments. A mortgage with a 30-year amortization period and an interest rate of 1.5% would have a corresponding trigger rate of 4.2%. In this case, we estimate that the monthly payment would have increased by about 20% by the end of October 2022. If you have hit your trigger point, you probably faced the following options:

• Increase your mortgage payment.

• Option to lock into a fixed rate for the remaining term or higher. Read our blog about switching to a fixed rate here.
  

• Pay a Lump sum contingent to your annual repayment privileges.

   

If you did secure your variable rate mortgage between 2020 and 2021 there may still be a bright side. There is a probable chance that you were able to pay off more of your principal while rates were still low. Regardless, economists are estimating a long-awaited decrease in interest rates by Q3 of 2023.

We have already written a few blogs concerning Trigger Rates, so if you’re in need of a refresher check out any of our previous blogs:

• Everything you need to know about Trigger Rates.

• Thinking About Locking Into a Fixed Rate Mortgage?

• September 7th: Prime Rate Announcement & Your Trigger Rate

   

If you have reached your trigger rate and are in need of a consultation for your unique situation, the best thing to do is contact us. Consulting a Mortgage Professional is the best way to ensure you have someone who is working with your best interest in mind.

Going into 2023 with higher hopes

In either case, additional rate hikes early next year are likely. Even when the central bank pauses, it will not pivot to rate cuts for an extended period. Market-driven longer-term interest rates have fallen significantly as market participants expect a recession in 2023. Fixed mortgage rates have fallen as well. The inverted yield curve will remain through much of 2023, with a housing recovery in 2024.

We can expect 1-2 more rate hikes going into 2023 and hopefully will begin to see some inflationary stabilization as we return closer to the 2% inflation target rate by Q4 of 2023 and in early 2024.

For the full story, make sure to read today’s blog on our website.

If you want to learn more, check out Dominion Lending Centre’s very own economist, Sherry Cooper’s youtube Channel where she breaks down all of the Bank of Canada’s announcements: Watch here.

The next scheduled rate announcement is January 25th, 2023.

Article by Darcy Doyle the Mortgage Professionals.