January 17, 2018

The Bank of Canada (BOC) raised its overnight interest rate 25 basis points to 1.25 per cent today, citing the growing economy and rising inflationary trends.

In anticipation of this increase, the six major banks raised their posted five-year, fixed-rate mortgage rates to 5.14 per cent from 4.99 per cent.

How will this affect your mortgage?

Since January 1, 2018, all home buyers, even those who don’t require mortgage insurance, must qualify for their mortgage at a higher rate. Under the new rules, the minimum qualifying rate for a mortgage is:

  • the greater of the Bank of Canada’s five-year benchmark rate; or
  • the contractual mortgage rate plus two per cent.

 

Mortgage costs and income required 

Mortgage terms before rate increase assumes: 75% loan, 25% down payment, 25-year amortization; interest rate: 4.99%
Mortgage terms after rate increase assumes: 75% loan, 25% down payment, 25-year amortization; interest rate: 5.14%

The BC Real Estate Association’s Chief Economist Cameron Muir believes this increase signals a much tighter lending environment for home buyers and owners in 2018.

“While today's rate increase was widely anticipated, it did come earlier in the year than previously expected and likely signals further rate increases to come in 2018. Canadian mortgage rates have already moved higher in anticipation of Bank of Canada tightening, which means a much tighter borrowing environment in 2018, particularly given newly implemented mortgage qualifying rules for low-ratio buyers,” Muir said.

Click here to read the BOC’s announcement.