“How much will the Bank of Canada Raise Rates”?
Ahead of the September 8, 2022, Bank of Canada meeting, many experts are left wondering: “How much will the Bank of Canada Raise Rates”? The overwhelming consensus is between 75 to 100 basis points (0.75% to 1%). We have now started to see the CPI (Consumer Price Index) on goods begin to fall, albeit marginally.
The Governor of the Bank of Canada has publicly maintained that rates will have to continue to increase in an effort to reach its target rate of 3-3.5% (we are currently at 2.5%). This means that the cost of borrowing, including mortgages, will undoubtedly increase even further. One of every four mortgagors will feel the pinch in terms of increased payment. Couple that with debt-to-income ratios rising at an alarming level per capita basis, and some predict that housing prices will have nowhere to go but down.
Still, the question of fixed versus variable remains one I hear almost daily, “Should I lock in” or “Are rates going to 8-10%”? The answer is simple – it depends. It depends on if you will be in your home for the next five years. If not, a fixed-rate mortgage will have as high a penalty as 6% of the mortgage balance. Is there a chance you could move in 5 years? Yes. Two-thirds of Canadians will end up breaking their mortgage early due to a new job, losing a job, divorce, or just outright needing to sell. On the other hand, a variable only has a penalty of three months’ interest.
