The Bank of Canada Raised Its Rate to 2.50%. Should You Rework Your Budget?

Which mortgages are affected?

The 2.50% figure is the Bank of Canada’s overnight policy rate. Variable mortgage pricing generally follows the lender’s prime rate plus or minus a contractual adjustment. Payments can move on an adjustable-payment mortgage. With a fixed-payment variable mortgage, more of each payment may go toward interest. An existing fixed rate generally holds through its current term. Ask your lender to confirm current quotes for new fixed-rate mortgages.

Translate the change into a payment

For illustration, on a $600,000 mortgage amortized over 25 years, a move from 4.00% to 4.25% takes the monthly payment from roughly $3,156 to $3,238, or about $82 more. The example assumes a nominal rate compounded semi-annually and monthly payments of principal and interest. Add property tax, insurance and applicable condo fees when comparing homes.

What to check before an offer or renewal

Ask your mortgage broker to compare products using the same loan amount, amortization and payment frequency. Confirm when your rate hold expires, whether it covers closing and whether a change in the property or down payment requires a fresh review. If your mortgage is up for renewal, request your lender’s offer and compare alternatives on the same terms.

Sources

• Bank of Canada · October 28 decision
• Financial Consumer Agency of Canada · Choosing a mortgage
• Financial Consumer Agency of Canada · Managing rising rates