Interest rates increase by 0.25% in today’s first rate announcement of 2023. Bringing the new Prime Rate to 6.7%.

Happy New Year from the Mortgage Professionals! We hope that this new year brings you new opportunities and above all, prosperity and health for you and your loved ones. As your trusted Mortgage Professional, we will continue to help you make informed decisions about your mortgage and keep you up-to-date on the market.

Topics covered in our December 7th Rate Announcement Blog:

• December 7th rate announcement Re-cap

• Today’s rate announcement: Jan 25th

•  National debt levels are rising

• How you can consolidate your debt through refinancing

• Rising rates and their effects on housing affordability

• The cost of borrowing and the current qualifying rate

• Our market projections for 2023

   

Today’s Rate Announcement Details

Today the Bank made its final rate announcement for the year by raising the overnight lending rate by 0.25%— Bringing the now Prime Rate to 6.70, from its previous standing at 6.45%.

Each 25bps (0.25%) increase in the prime rate on a $100,000 mortgage balance equals +$14 per month in a mortgage payment. Meaning, since March 2022, mortgage payments have increased $238 per $100k borrowed.

While the overall inflation rate is still around 5%, measurements taken over the past 3 months suggest that it may have peaked. Inflation is expected to decrease significantly this year. Lower energy prices, better global supply conditions, and the impact of higher interest rates on demand are all expected to bring the inflation rate down to around 3% in the middle of this year and back to the target rate of 2% by 2024.

Russia’s ongoing conflict with Ukraine is causing uncertainty. Financial conditions are still tight, but have improved since October, and the Canadian dollar has remained stable compared to the US dollar. The bank predicts that the global economy will grow by about 3.5% in 2022, then slow down to 2% in 2023 and 2.5% in 2024. This is slightly better than the bank’s prediction in October.

First, let’s take a look at where we left off in 2022

We ended the last rate announcement of 2022 with an increase of 25bps (0.25%)— Bringing the Prime rate to its previous level of 4.25%. The mortgage rate environment over the past year has caused angst for many as the prime rate increased 400bps since March 2022. Inflation, trigger rates and rising mortgage payments have been on everyone’s mind as the bank continues to raise interest rates in hopes to combat persistent inflation. Here are some end-of-the-year stats to help us situate ourselves in the new year’s market:

• The Consumer Price Index (CPI) rose 6.8% year over year in December 2022. We ended the year with a CPI of 6.3%— Still 5% above the target rate (See graph below).

• Mortgage interest costs rose 18.0% yearly in December following a 14.5% increase in November.

• The dramatic monetary tightening in the past nine months has slowed headline inflation. The decline in December, however, was primarily due to seasonality and a significant drop in gasoline prices.

• Wages have risen by more than 5% for the seventh consecutive month in December. The GDP in Q4 of 2022 ran well above the Bank's forecast of 0.5%.

• Employment rose by 104,000 last month, and the unemployment rate fell to 5.0%. The increase in employment in December was driven by full-time work, which rose for a third consecutive month— Surpassing the BoC’s expectations.

Consumer debt is on the rise. 

According to Equifax Canada, consumer debt reached $2.36 trillion in the third quarter, a 7.3% increase from the previous year. A recent survey shows that 71% of respondents are concerned about interest rates increasing faster than they can handle, which is a 4% increase from the previous survey.

While not all variable mortgages will see an immediate increase in payments with higher rates, those with fixed payments have trigger rates to consider, which is the point at which the lender may ask the holder to pay more or adjust their terms to pay off more of the principal loan. Before the recent hike, the Bank of Canada estimated that half of the mortgage holders with these types of loans had already reached their trigger rates.

Credit card spending reached an all-time high by Q3 2022, rising 17.3% from 2021. The average spending on credit cards was also up, reaching $2,447, a 21.8% increase from the third quarter of 2019.

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.