Life just got more EXPENSIVE | Surrey REALTOR® explains today's Bank of Canada rate hike

So you just bought a house and you are worried or you're a homeowner and you're worried about the recent announcement this morning about the bank of Canada raising rates, what's going to happen? How is it going to affect your mortgage and what is the future going to look like? All that and more coming up. Hey, everybody. Welcome back to the Germyn Group's Real Estate Channel, where we talk about everything real estate for home buyers, home sellers and anybody that currently owns a home. 

Okay, everybody. So the sky is not falling. However, the bank of Canada did announce an interest rate increase this morning of a quarter point or 0.25%.

 This is bringing the interest rate or the overnight lending rate up to about a half a percent, which is also the first time that they've raised interest rates since 2018, even before the pandemic started. The bank must now contend with inflation and inflation expectations, which have been much higher than they had anticipated and are comfortable with. They noted, while they are also monitoring the impact of the Russia invasion of Ukraine on the financial market and commodity prices, the bank is still expected to continue to tighten, ultimately bringing its overnight rate to 1.75% by early 2023. There clearly is more uncertainty in the global economy right now than when the bank decided to embark on this tightening cycle. That uncertainty is already being reflected in the long term Canadian interest rates, with the once rapidly ascending 5-year Government of Canada bond yield falling about 30 basis points in recent days.

 So they had a plan, and who knows if it's going to continue to fruition. But that's a major increases from now until early 2023. If that plan continues to roll out for now, though, is it really that big of a deal? No. And it is a good thing. 

Yeah. I mean, we're all paying more money, absolutely, for everything, and we need to get that inflation under control. So one way of doing that is by raising interest rates, by increasing the interest rates by a quarter point, that only really adds up to about $13 on every $100,000 of borrowed money. It's really not that big of a deal because it's only about $156 extra dollars per year, or $780 over the life of a 5-year mortgage. To put those exact same numbers into perspective, if you took a loan out on a home or you're in a variable rate mortgage right now and you owe roughly about $500,000 on your mortgage, the numbers aren't that bad.

 Again, on a $500,000 loan, it's about $65 a month extra or $780 per year. Now where these numbers really start to add up is if the bank of Canada decides to continue to increase these rates and hit that target price that they suggested in early 2023. If they hit that 1.75% mark that they are hoping to by early 2023, that can really start to add up for people. That would be an extra $78 per month on every $100,000 of loaned money and carrying over into the course of the year. That could be about $936 extra per month for every $500,000.

 Again, on our example of a loan of about $500,000, that would be just over $4,600 per year extra that people could be paying on their mortgages by early 2023. So here's a little bit of good news for those of you that are in a fixed mortgage product. There is no change to your mortgage amount because that is the luxury and the beautiful thing about being in a fixed mortgage, the rates don't change until it's time to renew. With that being said, though, anybody who is looking to buy and considering getting into a fixed type product, they're going to be taking on the new interest rates of the day. And as the bank of Canada increases their rates, you're going to see those five year fixed rates go up as well. 

Regardless if you're going to do a variable or a five year fix for a new buyer, you're definitely going to be paying more to borrow money moving forward.

 Thanks again for reading, if you have any questions, please leave a comment below. Until next time, talk to you later!

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Darin Germyn PREC* & Adam Howsam
Macdonald Realty LTD | 604-542-2444 |
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