Bank of Canada Interest Rate Update - June 2023

The Bank of Canada met on June 7th and surprised markets with another interest rate increase of 0.25%. And for all of us variable rate mortgage holders this announcement has added further stress to our budgets. 

To read the full report on the June 7th announcement, please click HERE

The Bank of Canada (BoC) outlined that the core inflation numbers are proving stickier than expected and are not coming down as quickly as they had hoped, apparently the previous 4.25% of interest rate increases that we have seen just haven't been enough to curb consumer spending. Until the BoC is confident that those core inflation numbers are dropping, they will continue to do whatever it takes to restore price stability for Canadians, which means that there may be more increases yet to come. The BoC has still remained optimistic that we should see our target inflation down to about 3% by the end of this year, which should help to ensure some relief for interest rates, but are concerned that getting those numbers from 3% to the 2% target may prove more challenging.

Most of our clients who are needing new mortgages today are opting for shorter term fixed rates which offer some protection for the near term, while still being able to renew at a time when rates are hopefully starting to show some material relief. But for those of us who are currently in a variable rate product, locking-in now may not make sense as the fixed rate options at your bank to lock-in are just as high. 

As previously discussed, we are still expecting rates to remain elevated, with possibly more increases still to come, for the next 1-2 years while the Bank of Canada can monitor the impacts of the hikes and our inflationary data. The BoC has been clear that they will not be lowering rates until we have reached our 2% target. As such, my top recommendation continues to be that we must ensure your financial house is in order so that you are better able to weather this storm, and I am here to help you through this. Please do not wait to reach out to me until it’s too late. If you have any high interest debt or are struggling with your payments, I am here to help.

What does this rate announcement mean for you?    

If you have a fixed rate mortgage, nothing changes for you. However, if you have a mortgage that is up for renewal in the next 6-12 months, we should definitely talk so that we can make a plan for the likely higher payment that you may face. 

If you are in a variable rate mortgage then your interest rate will increase by 0.25% and your next payment will likely be higher as well. How much higher? For every $100,000 your payment will increase by about $15 per month.

If you are in a "fixed payment - variable interest" product...    

And your payments have not yet changed, then you have likely hit or passed your "Trigger rate". It is important that you understand the consequences of this, so please reach out to me so that I can explain your specific situation and my recommendation for what to do.    

Should I lock-in my variable rate now?   

If locking-in to a fixed rate is something you are considering, let's talk. You may want to consider a 2 or 3 year fixed rate, which can offer you the fixed comfort today while still being able to renew at a time when rates are (hopefully) lower. 

I am personally still not locking-in my variable rate mortgages, as I do feel that we are going to see rates lower over the next 2-3 years and I am willing to take the downside risk of rates potentially rising further in the near term for the upside potential that rates may drop sooner than expected and I will immediately benefit at that time. I would need to see a material drop in fixed rates before I would consider locking-in, and we are just not there yet. However, my budget can support the risk of staying variable. If you have any concerns, please let me know and let's work together to brainstorm the right strategy for you.

I want to lock-in to a fixed rate, what do I do now?    

Contact your lender directly and ask them what rate they will offer you to lock-in. Request all terms available to you, including 2 or 3 year rates if possible. Once you have that information if you would like our help, send it to me and I will help you with a strategy.  

Our team is here to support you for any and all your mortgage and real estate needs, we look forward to hearing from you.    

I hope you have a beautiful day.