Bank of Canada and Variable Rate Mortgages

There's a lot of buzz around the future of mortgage interest rates at the moment...and for good reason.

We all know that COVID has hurt our economy and we are currently experiencing some of the lowest interest rates in history because of it.

Our economy has recovered somewhat but we still have some work to do and, as I write this, the Omicron variant is really making things difficult.

As our economy digs out of the COVID ditch, the Bank of Canada will need to increase interest rates in order to try to control our inflation rate.

They do this using something called the Overnight Rate. If they adjust the Overnight Rate, then our major financial institutions will also adjust the Prime Lending rate by the same increment (usually).

For those of you who have a variable or adjustable rate mortgage, any change in the Prime Lending rate means the interest rate on your mortgage will also change.

Don't worry though, your interest rate won't change at any given moment. The Bank of Canada meets 8 times per year to discuss things and decide if they are going to make a change to their Overnight Rate. 

The image attached to this post shows the Bank's schedule for 2022.

No one knows for sure what to expect regarding when the first interest rate increase will come and how quickly rates will rise after that, but we do know that the rates will increase at some point and it sounds like at least the first one will come at some point here in 2022.

If you have a variable rate mortgage and are concerned about the rate increases, remember that you do have the option to lock your mortgage into a fixed rate at anytime, but I do recommend that you connect with your Mortgage Broker to discuss the options before you commit to anything.

For more information on how variable/adjustable rates work, visit my fixed vs. variable page.