Market Update: Bank of Canada Raises Rates Once Again

The Bank of Canada has continued its trend of raising its key rate on Wednesday, this time increasing the rate by 75 basis points, bringing the rate to 3.25%, as it attempts to further control the inflation rate.

At the start of 2022, the rate stood at 0.25%, slashed in 2020 in an attempt to stimulate the economy during the pandemic. While there was a decrease in the rate last month, the BoC notes this was due mostly to the prices of gas, while virtually the rest of the economy saw price pressure increase still. That is what led them to decide on another 0.75% increase.

When it comes to the real estate market, this increase causes many loans like variable rate mortgages to come very close to what is called the “trigger rate”. If you recall back to our post on variable rate mortgages, you’ll remember that they give borrowers the option to keep their payment fixed even as the rate changes. As the rates increase, the amount of each payment that goes towards the principal gets reduced and more goes to paying the interest which inturn extends the length of the loan. At some point the spread between principal and interest becomes so large it is interest only, and that is what triggers terms to be adjusted. For those who hit the trigger rate, this means their mortgage payments will be increasing in order to ensure parincial is getting paid down with payments and this rate increase brings people that much closer with some economists expecting future increases to come.

Content courtesy of Pete Evans, CBC News

Charts courtesy of Graeme Bruce, CBC News

https://www.cbc.ca/news/business/bank-of-canada-rate-hike-1.6574457

If you are a buyer in the Windsor real estate market and searching for houses for sale in Windsor, be sure to talk to your agent and your mortgage broker to find out how these changes affect you.

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!