TORONTO (CU)_Variable-rate mortgage holders and those holding a home equity line of credit were quick to notice the Bank of Canada’s move to raise its policy rate by 50 basis points last week. However, the central bank’s chief has acknowledged that if inflation persists, rates will have to rise more quickly and according to experts, the effects of this are expected to extend beyond mortgage carrying costs.
Just a day after the central bank hiked its policy rate, the Royal Bank of Canada and Toronto-Dominion Bank were quick to lift their prime rates by 50 basis points to 3.20 per cent, quickly followed by Scotiabank and CIBC. “Higher and faster rate hikes will affect mortgage affordability for a significant population of homebuyers,” Sung Lee, mortgage agent from RatesDotCA, told the Financial Post. “Major banks have already pushed fixed rates higher several times over the past few weeks with some approaching the four per cent mark for uninsured products.”
As homeowners deal with rising costs of home loans, experts warn them of the ripples from the rate increase. According to James Laird, co-founder of Ratehub.ca, home prices across the country are expected to experience a downward pressure as a result of higher mortgage rates. On the other hand, BoC Governor Tiff Macklem has warned that the central bank is prepared to get more aggressive with interest rate policy based on economic recovery and the outlook for inflation, and this could put more pressure on Canadian home owners.
So far, the central bank governor has signaled the possibility of the benchmark rate being raise above the neutral range of two to three per cent, potentially taking the overnight rate to 3.25 per cent.
“Rates are going up this year, but we do not know what next year will bring. This creates a bit of a roller coaster experience for current and would-be homeowners,” Leah Zlatkin, a licensed mortgage broker at LowestRates.ca, wrote. “These increased costs have a real impact on homeowners’ wallets. Some variable rate holders may think about switching to a fixed rate to bring some stability to their outlook, but anyone with variable rate will still be saving money over a fixed rate right now.”
