This week, the Bank of Canada raised their interest rate for the first time in seven years. But if you’re unsure of what that means or how it will affect you, keep reading.
The BoC raised the target for its trend-setting overnight rate to 0.75 per cent from 0.5 per cent. It was the first rate-hike since September 2010, and it happened because economic performance so far this year has been stronger than the bank had originally expected.
“The accumulation of evidence and the growth in our confidence that the economy is on a solid trajectory should be good news for everybody,” Stephen Poloz, governor of the Bank of Canada, said. “I know not everybody will think a higher interest rate is good news, but it’s a symptom of an improving economy.” [Financial Post]
The Bank of Canada sets its key interest rate eight times a year, which is used by banks to set their prime rates. The prime rate establishes how much it costs for you to borrow money on any type of loan (mortgage, car etc.).
In the wake of this announcement, five big banks have raised their mortgage rates in the last 24 hours, as is expected. While paying more isn’t great news, it doesn’t actually equate to a back-breaking amount for people.
“If people are dealing with a variable rate mortgage or a line of credit, for $300,000, it is only going to increase their monthly payment by $37. While nobody wants to pay more, that isn’t that much.” [CBC News]
More importantly, a home purchase is a big investment, so despite the fact that this rate increase might stir home buying activity, you never want to rush into a home loan because of fear. If you’re wondering how this rate change will effect you, please don’t hesitate to contact me.
