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Variable Rates up another 0.75%

Bank of Canada has raised their overnight rate by 0.75%, bringing it to 3.25%. Which for most lenders will likely increase their Prime rate to 5.45% from the previous 4.70%.


This change will have an impact on those with a Variable Rate Mortgage or Home Equity Line of Credit. It will mean a $42 a month payment increase for every $100,000.

Those with a fixed rate mortgage won't be affected by raising rates until they come up for renewal.


What is the Bank of Canada Overnight Rate?

The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.

The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.

Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.

Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.

Should I lock into a Fixed Rate now?

Historically variable rates have shown to save you more money in the long run.

A few things you should consider before locking into a Fixed rate is:

  • Are you planning to sell your home within the next 3yrs? Then we would highly recommend you stay in your variable rate mortgage.

  • Can your budget handle a payment increase if rates go up?

  • Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.

If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.


Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.

Today, the Bank of Canada increased its overnight benchmark interest rate 75 basis point to 3.25% from 2.50% in July. This is the fifth time this year that the Bank has tightened money supply to combat inflation. While the latest increase was comparatively smaller than the move made in July (100 basis points), it is bigger than the changes made in March (+0.25%), April (+0.50%) and June (+0.50%).

Moreover, the Bank stated it is not finished hiking its policy interest rate just yet and noted that central banks around the world also “continue to tighten monetary policy.”

These are the highlights of today’s announcement.

Inflation at home and abroad

  • In Canada, CPI inflation eased in July to 7.6% from 8.1% because of a drop in gasoline prices; however, inflation (excluding gasoline) increased and data indicate a “further broadening of price pressures,” particularly in services

  • The Bank’s core measures of inflation continued to move up, ranging from 5% to 5.5% in July

  • Surveys suggest that short-term inflation expectations remain high domestically and “the longer this continues, the greater the risk that elevated inflation becomes entrenched”

  • Global inflation remains high and measures of core inflation are moving up in most countries

Economic performance at home and abroad

  • The Canadian economy continues to operate with excess demand and domestic labour markets remain “tight”

  • Canada’s GDP grew by 3.3% in the second quarter – somewhat weaker than the Bank had projected – but indicators of domestic demand were very strong

  • Canadian consumption grew by approximately 9.5% and domestic business investment was up by almost 12%

  • Commodity prices have been volatile: oil, wheat and lumber prices have moderated while natural gas prices have risen

  • Economic activity in the United States has moderated, although the U.S. labour market also remains tight

  • China is facing ongoing challenges from COVID shutdowns

Canadian housing market

  • With higher mortgage rates, the housing market is pulling back “as anticipated” following “unsustainable growth during the pandemic”

Looking ahead

The Bank expects the Canadian economy to “moderate” in the last half of 2022 as global demand weakens and tighter monetary policy begins to bring demand more in line with supply.

However, given the outlook for inflation, the Bank’s Governing Council continues to note that its policy interest rate will “need to rise further.”

To underscore its current thinking, the Bank wrote that it remains “resolute” in its commitment to price stability and will continue to take action as required to achieve a 2% inflation target.

On the bright side, the Bank offered that as the effects of tighter monetary policy work through the economy, it “will be assessing how much higher interest rates need to go to return inflation to target.”

October 26, 2022 is the BoC’s next policy announcement date at which time it will also make its fourth Monetary Policy Report of the year available for review. As always, First National will follow this seminal event. For other capital market insights, please stay tuned to the Resources page of our website on a regular basis.



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