Market News: Bank of Canada Surprises with Rate Hike

Market News: Bank of Canada Surprises with Newest Rate Increase

While the news of the rate increase wasn’t a surprise given the Bank of Canada previous two key rate hikes of 0.25% and 0.50%, the actual rate itself did. While it was rumoured that a 0.75% increase was on the way, Wednesday the central bank announced a historic increase of 100 basis points, a full percentage increase, bringing our benchmark interest rate to 2.5%. This was the biggest rate hike since 1998, but not expected to be the end with more increases projected for the rest of 2022.

From a Windsor real estate perspective, how will this rate increase the buyers searching for homes for sale in Windsor? The housing market is one sector to be most directly affected. As of Thursday morning, Royal Bank and TD Canada Trust have already raised their prime lending rates from 3.7% to 4.7% with the rest of the banks and lenders expected to follow shortly. As sales prices continue to fall coast to coast, this increase is expected to keep this trend going. The graphic below illustrates the effect of a 1% increase on your mortgage.

CBC News provided the following example of how these increases will increase your mortgage costs.

“On a $400,000 mortgage amortized for the normal time frame of 25 years, a borrower who signs up for a loan at a three per cent rate will pay $1,893 a month. But if their rate jumps by a full percentage point, the way the bank's rate just did, that monthly payment will go up to $2,104 a month. That's an extra $211 every month out of their budget. If the rate goes to five per cent, the monthly payment jumps to $2,326, which would be more than 22 per cent higher than what they were originally paying.” (Pete Evans, CBC News, 2022)

Here at Jump Realty our agents will give you honest advice on what course of action is best for you in their professional opinion and will always put taking care of your best interests first! With offices in Windsor, Tecumseh, Kingsville, LaSalle, and Chatham, no matter where you are, a Jump agent is ready to help. Please contact us for any housing needs and let us give you a better real estate experience!