With the Bank of Canada poised to make a rate announcement on July 12, speculation is 50/50 the bank will hold the rate at 4.75% or increase it .25% to 5%. .“There is uncertainty around whether the bank will increase the policy rate by a further 25 basis points or hold,” says James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender.“We had good inflation numbers in May, which may influence the bank to hold, however, consumer spending remains elevated, so this could cause the bank to hike rates further.” An increase by the bank means an increase in variable and fixed rate mortgages, says Laird. “If the bank hikes the policy rate by 25 basis points, variable mortgage rates will move up immediately. The bond market will also move, which will cause fixed mortgage rates to go even higher,” he says, adding, "plan for an increase." “It’s best to plan for a 25-basis-point increase and be pleased if they hold,” says Laird. “This means that anyone with a variable-rate mortgage or home equity line of credit (HELOC) should be budgeting for a rate hike. Variable-rate holders with floating payments should budget for what their mortgage payment will be if their mortgage rate goes up by 25 basis points.” .Laird advises to get a mortgage pre-approval, if you’re shopping for a home, to hold today's fixed rates for up to 120 days and has advice for mortgage holders with renewals on the horizon. “If your mortgage is up for renewal within the next year, it’s a good idea to hold a rate with a new lender now,” he says. “If rates jump up further in the future, it should make sense to break your existing mortgage and switch to that new lender before your rate hold expires to lock-in the lower rate.” “A hike will put downward pressure on home prices, which have rebounded since the beginning of the year, and cause transactions to slow over the summer.” .Laird has calculated how a .25% increase will affect an average mortgage payment in Alberta. . “According to Ratehub.ca's mortgage payment calculator, a homeowner who put a 10% down payment on a $465,198* home with a five-year variable rate of 5.8% amortized over 25 years (total mortgage amount of: $431,657) has a monthly mortgage payment of $2,711,” he says.“If the Bank of Canada announces a 25-basis point rate increase on July 12, their variable mortgage rate will increase to 6.05% and their monthly payment will increase to $2,775.” .“This means that the homeowner will pay $64 more per month or $768 per year on their mortgage payments.” *May 2023 average home price in Alberta was $465,198 (Canadian Real Estate Association)
