Some people will view this most recent policy rate hike as good news, whereas others may view this increase as bad news as it impacts their immediate finances. One positive take away is that the overnight policy rate fell short of the expected 0.75% increase, which offers insight behind the BoC’s recent decision in relation to our economic future.
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So, what has Happened?
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How does this Impact You?
If you are in an adjustable-rate mortgage (ARM), your variable payment will increase by about $30 for every $100,000 borrowed on your mortgage. If you are in a fixed rate mortgage - you will see no change. If you have a home equity line of credit (HELOC) - you will see an increase to your minimum interest only payment. If you are in a variable rate mortgage (VRM with a static payment) - your static variable payment may be close to its trigger rate and therefore trigger point. In explanation, if you have reached your trigger rate, this means you are now making interest…
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Why are Interest Rates Increasing?
There are various reasons as to why rates are changing, but the number one reason is no secret – Inflation!
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Why Is a 2% Inflationary Target So Important?
Let’s look at a simple example: A $1 cup of coffee in a 2% inflationary period, takes 36 years to double via compound interest A $1 cup of coffee in a 4% inflationary period, takes 18 years to double via compound interest A $1 cup of coffee in an 8% inflationary period, takes 9 years to double via compound interest Inflation compounding year over year: At a 2% rate of inflation, we consumers can handle that slow increase over time At a higher than 2% rate of inflation, we, the consumer will see the cost of every day essentials spiral beyond our financial control The longer inflation…
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What Can We Expect Moving Forward with Interest Rates?
Moving forward, we can expect the BoC to very likely increase interest rates once again come their next meeting on December 7th, 2022. Economists are predicting that we will see a similar 0.50% rate increase and a potential smaller 0.25% increase in early 2023, before rates begin plateauing for the better part of 2023, and possibly decreasing come the end of 2023.
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What Are Your Options If You’re in a Variable Mortgage?
Extending your amortization out will reduce your monthly payment Consolidating debt can reduce your overall monthly bills You can access your equity to aid in payment cushion We can search for more favorable lenders with lower rates You can add a home equity line of credit--> You can add a home equity line of credit Ride The Wave & Weather the Storm It’s always important to stick to your investment strategies and remember your why. What goes up has historically always come down, so weathering today’s storm may pay dividends in your future. Regardless of any decision, it is vital that you take a deeper look at…
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Should you Lock in Now?
First, ask yourself: Is it the monthly payment that concerns you most, or the interest? • If your payment concerns you most, lets discuss the static payment option (VRM mortgage) • If it’s the interest that concerns you most, a fixed rate is likely a higher rate, but will provide you with that certainty moving forward. Estimated fixed rates today: Insured fixed rates will range between 4.90% - 5.50%, term length dependant. Conventional fixed rates will range between 5.20% - 6.05%, term length dependant. Should you renew early if your mortgage matures in the next 12 months? Based on where interest rates are today and the…
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Opportunities In Today’s Market?
With rising interest rates, home values have dropped significantly and are inching towards further decreases following our most recent rate hike. We are also seeing a less competitive purchasing process, offering potential buyers more flexibility. Buyers can purchase a home today at a higher interest rate and see a SMALLER monthly payment than when compared to the same property purchased at the lower 2021 interest rates. This is because home prices have come down in value. You can’t change the price you pay for your home, but your mortgage rate will change many times. Over the past 30 plus years, when rates…
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Economic Recap
Bottom Line This will likely be the last oversized rate hike this cycle. The Governing Council next meets on January 25. Whether they raise rates will be data-dependent. If they do, it will likely be by 25 bps. Even if they pause at that meeting, it does not rule out additional moves later in the year if excess demand persists. I expect further monetary tightening, the continued bear market in equities, and a further correction in house prices. Canadian benchmark home prices are already down nearly 10% nationwide. Several chartered banks told us this week that more than 25% of the remaining…
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