Today’s Rate Announcement Details

As the consumer lenders’ Prime rate is based on the overnight lending rate, consumers can expect to see today’s 0.75% hike phased in shortly. That’s going to drive five-year variable interest rates for “A” borrowers from their current range of 3.5 – 4.4% to 4.5 – 5.5%.

Global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy. Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. In Canada, CPI inflation eased in July to 7.6% from 8.1% because of a drop in gasoline prices. However, inflation excluding gasoline increased and data indicate a further broadening of price pressures, particularly in services.

Depending on your mortgage amount, you’re looking at an additional mortgage payment increase of $42 per month for every $100,000 of the balance owing. For example, if your mortgage balance is $500,000 then your monthly payment will increase by approximately $210 per month.

Are you approaching your Trigger Rate?

You have likely heard – or will soon be hearing – a lot of talk about “trigger rates” and “trigger points“.

In case you haven’t read our previous blog on trigger rates to familiarize yourself, Let’s start with a few definitions:

• Variable Rate Mortgage (VRM) – As the prime rate changes, so does your contractual rate. When interest rates change, typically, your mortgage payment will stay the same.
  
  

• Adjustable Rate Mortgage (ARM) – As the prime rate changes, so does your contractual rate, BUT unlike the variable rate, your mortgage payment will change when interest rates change.
  
  

• Trigger Rate – When interest rates increase to the point that regular principal and interest payments no longer cover the interest charged, interest is deferred, and the principal balance (total cost) can increase until it hits the trigger point.
  
  

• Trigger Point – When the outstanding principal amount (including any deferred interest) exceeds the original principal amount. The lender will notify the customer and inform them of how much the principal amount exceeds the excess amount (Trigger Point). The client then typically has 30 days to make a lump sum payment; increase the amount of the principal and interest payment; or convert to a fixed rate term.

Who will first be affected by the increases in Prime Rate?

Quick answer, Variable Rate Mortgage (VRM) holders who received their mortgages between March 2020 to March 2022.

During the month of March 2020, the prime rate dropped three times in quick succession from 3.95% to 2.45%, and variable-rate mortgages arranged while prime was 2.45% have the lowest payments. Rates are on the rise now, but they were at some of the lowest points in history during the Pandemic. The lower the interest rate was, the lower the trigger rate, and the faster you may be to hit a negative amortization.

What should I do if I have reached my Trigger Rate?

When this happens, you should be contacted by your lender and generally have three ways that you can proceed:

• Make a lump-sum payment against the loan amount.

• Convert with a new loan at a fixed-rate term.

• Increase their monthly payment amount to pay off their outstanding principal balance within their remaining original amortization period.

Find a full example of Trigger points on our blog by reading the full article.

Considering locking into a fixed rate?

Before considering locking into a fixed rate, please read our blog about the consequences and other important factors to consider. As always, we suggest giving us a call for a free consultation about what’s best for your unique situation.

The Bank of Canada has raised its rates for the 5th time this year. Bringing the new Prime Rate to 5.45%.

As your trusted Mortgage Professionals, we want to help keep you informed long after you’ve completed your mortgage with us. We understand that it can be difficult to navigate the current rate environment and so we have compiled some important topics below to help simplify all the recent changes you may have heard in the news. 

Topics covered in our recent Rate Announcement Blog:

• Prime Rate increases by 0.75%— raising it to 5.45%

• How will any changes in interest rates affect your mortgage?

• Today’s Rate Announcement Details

• Prime Rate effects on variable rate mortgage holders

• What is a Trigger Point? What is a Trigger Rate?

• What happens when you reach your Trigger Rate?

  The Bank of Canada has raised its Prime Rate by 0.75%.  The Bank of Canada today increased its target for the overnight rate by another 75bps, or 0.75%. Raising the Prime Rate to 5.45% from its previous 4.7%. The Bank is also continuing its policy of quantitative tightening. You have likely heard - or will soon be hearing - a lot of talk about "trigger rates" and "trigger points". If you haven’t yet, then you’ve definitely been hearing about all the recent rate increases that have been happening throughout 2022. Click here to read the full article