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2022-03-06 | 15:56:03

Bank of Canada Prime Rate Hike March 2022

So, last week the Bank of Canada (BoC) increased the Bank Rate (aka overnight target rate) by 0.25% to 0.50%.  It’s the first rate hike since 2018, and it likely won’t be the last we’ll see this year.  How will this affect you and your mortgage?  Let’s ask some questions.

  1.   Will mortgage lenders increase their Prime Rate by the same amount?

Almost certainly “Yes”.  Some already have, so the mortgage Prime Rate is at 2.70%.

  1.   Will it affect my fixed rate mortgage?

No, it will not.  Fixed rates for new mortgages have increased in recent weeks, but the fixed rate for your existing mortgage will not change until the mortgage term ends.

  1.   Will it affect my variable rate mortgage (VRM) or my Home Equity Line of Credit (HELOC)?

Yes, it will.  Your mortgage lender will contact you in due course and tell you if your regular payment will increase and, if so, by how much and when the new payment is due.

  1.   How much is my payment likely to go up?

For variable rate mortgages, you’ll likely see a monthly payment increase of $12-13 for each $100K of mortgage balance.  As an example, a $250K mortgage will likely increase by $32 and a $500K mortgage by $64. 

For HELOC’s, the increase will be smaller because even though the rate is higher the minimum monthly payment is interest-only.

  1.   How often will the BoC increase rates this year?

We don’t know, but there are several factors the BoC has to consider, including Canadian inflation rates, as well as the general economy and major world events (as we’re seeing in the media today).  Most pundits feel 2-4 rates hikes this year is probable.

  1.   When does the BoC meet again?

13th April 2022.  The fact they’re meeting doesn’t mean they will increase the Bank Rate then; we’ll see.

  1.   Should I lock in my VRM to a fixed rate?

That’s a hard one to answer as each person’s circumstances are different.  It would take too long to list all the factors here, so I encourage you to contact your mortgage broker/banker and seek his/her advice.  They are knowledgeable and will give you advice that is relevant to you.

BTW, your mortgage lender may reach out to you with an offer to convert your VRM to a fixed rate at no cost.  This is good business for the lender because it locks you in for a period of 5 years, but may not be in your best interests.  As above, contact your trusted mortgage broker/banker before making a decision.