What does the central bank’s rate increase mean for mortgage owners?

The Bank of Canada’s unexpected decision to raise its key lending rate will lead to higher mortgage costs, experts say.

On Wednesday, the BoC increased its overnight rate by 0.25% to 4.75% – only one in five economists in a Bloomberg Survey predicted such a move. Nevertheless, according to Bloomberg News, policymakers noted that more rate hikes may be possible after deciding to take a pause in January.

Variable-rate mortgage borrowers and home equity line of credit (HELOC) holders who are already feeling the impact of rate hikes, will face even larger payments.

Those who have fixed payments with their variable mortgages will probably exceed their trigger rate, while those with variable payments will face larger payments in order to absorb this rate increase.

A trigger rate is reached when a homeowner’s mortgage payment is not enough to cover accumulated interest since their previous payment.

For the average variable mortgage holder recent rate hike means higher payment starting next month. For every $100,000 of the outstanding mortgage balance, they will pay approximately $15 more per month. HELOC owner will pay approximately $21 more per month for every $100,000 of the balance.

Meanwhile, fixed rates had already begun to grow even before the BoC meeting, and they are expected to keep going up pushed by a hike in bond yields. In case you are planning to buy a property or your mortgage renewal is coming, get your pre-approval as soon as possible!

To discuss implications of the latest interest rate hike and strategies for the new home purchasers and existing mortgage holders, join us this Saturday, June 10 at 7:30am for the live interview on Radio Show “Intersection” on FM 88.9, watch live stream at Radio NOVA Toronto channel or listen online at radionovatoronto.ca.