Bank of Canada Hikes Interest Rates to 5%, Highest in Over 20 Years
The Bank of Canada hiked its benchmark interest rate by 0.25% on Wednesday, bringing it to 5%. This is the highest rate since April 2001.
The hike was expected by economists, who are forecasting more increases in the coming months as the Bank of Canada tries to cool inflation.
The increase in interest rates will have a direct impact on mortgage rates, which are already at their highest level in years.
That’s an extra $20 per month on a $100,000 mortgage. Your average Canadian mortgage holder can expect to pay an additional $100 monthly on their mortgage after Wednesday's hike.
This is only the most recent of a series of rate increases by the Bank of Canada intended to keep inflation at around 2%. Currently, it is running at 3.4%.
If you're considering buying a home, it's important to factor in the rising cost of borrowing. Even a small difference in interest rate can have a big impact on your monthly payments.
Here are some tips for saving money on your mortgage:
Get pre-approved for a loan before you start shopping for a home. This will give you an idea of how much you can afford to borrow, and it will also show sellers that you're a serious buyer.
You can lock in the pre-approved mortgage rate for up to four months, which can give you a leg up on other buyers who might be financing their purchase with a higher rate mortgage.
Compare rates from multiple lenders. Don't just go with the first lender you find. Shop around and compare rates from different lenders to get the best deal.
Ask about discounts. Many lenders offer discounts for things like good credit or a down payment of at least 20%.
Consider a fixed-rate mortgage. A fixed-rate mortgage will give you peace of mind knowing that your interest rate won't change for the life of the loan.
Keep in mind that variable rates are currently high, and over the next five years, they are more likely to drop than rise further. If you lock in a fixed rate, you might want to only commit to a three-year fixed-rate mortgage because rates are likely to be lower in three years.
If you're looking for a mortgage, don't wait any longer to get pre-approved. Rates have been rising consistently for months, even though most experts thought they would never climb this high. Locking in a rate now allows you to nail down a home-buying budget that you know you can follow through with. You don’t want to be attempting to close on a purchase, only to find out that your approval is no longer valid because rates and your monthly mortgage payments have climbed out of reach.
Additional Tips:
Consider a longer repayment (i.e., amortisation) period. Typical repayment is over 25 years but some lenders will let you repay over 35 years. A longer repayment period will lower your monthly payments, but you'll pay more interest overall.
Make a larger down payment so your mortgage is smaller. This will also lower your monthly payments. Consider asking your parents or family for help with this.
Shop around for a good mortgage broker. A mortgage broker can help you compare rates from different lenders and find the best deal.
