Bank of Canada Rate Hike Increases Borrowing Costs for Homebuyers
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The central bank's first interest rate increase in over three years forces potential buyers to recalculate affordability.
The Bank of Canada raised its benchmark interest rate by a quarter-point on Wednesday, bringing the policy rate to 2.5 per cent. According to reporting from CityNews Toronto, this marks the first rate hike in more than three years.
The move directly impacts the housing market by increasing borrowing costs. Kelly Ho, a Vancouver-based certified financial planner, noted that potential homebuyers will need to revisit their budgets to determine if they can absorb the increase and may need to redo their calculations to see what they can actually afford.
For current homeowners, the impact depends on their mortgage structure. Ryan Gubic, founder of MRG Wealth and a personal certified financial officer, stated that those with variable mortgages should expect notices of rate increases within 24 to 48 hours. Gubic explained that for borrowers with variable rates but fixed payments, a larger portion of their monthly payment will now be directed toward interest rather than the principal. While those with fixed-rate mortgages will not see an immediate change, Gubic advised those renewing in the next one to two years to monitor new renewal rates and payment amounts.
Beyond mortgages, Natasha Macmillan, senior director of everyday banking at Ratehub.ca, noted that interest rates for home equity lines of credit (HELOCs) and personal lines of credit generally track the central bank's prime rate. Gubic added that HELOCs specifically carry variable interest plus a spread charged by the financial institution.