Prime Rate Increase
Bank of Canada Hikes Key Interest Rate Today
The Bank of Canada hiked its key interest rate by a quarter point today, for the second month in a row.
In its statement the Bank noted that it “expects the economic recovery in Canada to be more gradual than it had projected in…April, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada.”
Bank of Canada may pause on its further rate increase to assess the effects of the 2 increases already implemented. The debt crisis in Europe and slow recovery in the US will both affect Canadian economic growth for the balance of the year.
Most lending institutions are expected to respond to the Bank’s rate hike by increasing their prime lending rates by a quarter point. However, lenders do vary in when exactly they adjust their rates for variable-rate mortgages. Fixed-rate mortgages are not affected directly by today’s announcement as their rates are influenced more by movements in the bond market. A competitive five-year fixed mortgage rate is available to qualified borrowers at 3.95 per cent, while with the Bank's rate increase today a competitive variable rate mortgage is available to qualified borrowers at 2.15 per cent (Prime of 2.75 per cent minus 0.60 per cent).
Followings tips to help borrowers cope with rising interest rates:
Guard against payment shock. If you receive extra cash like an inheritance, tax refund or a work bonus, think about it putting towards your mortgage. Or, you can add on to your ongoing mortgage payment each month to help pay down the principal faster. These approaches help create a cushion against a potential payment shock if rates are up significantly at renewal.
Get a mortgage checkup. On top of a possible mortgage rate change, other major life changes may call for looking over your mortgage, such as starting or growing a family, change in income or home renovations. I can review your current interest rate, payments, and other mortgage terms, determine available home equity, and recommend options that may help you better reach your goals.
Consider debt consolidation. Transferring high-cost consumer debt like a credit card balance to a lower interest rate by consolidating it into your mortgage can help you boost your cash flow to build up savings or pay down your debt faster.
