Will the Bank of Canada continue to hike rates after 2023?
The Bank of Canada’s rate hikes have likely reached their stopping point this year, according to Earl Davis, head of fixed income and money markets at BMO Global Asset Management. This is mainly because the hikes over the past year and a half have yet to take full root in the Canadian economy. “We don’t foresee any hikes in 2024,” Davis said in an interview with BNN Bloomberg. “That speaks to the lag – give it a little bit of time to see the lag.” At the same time, while Davis maintained that “2023 is the end of hikes,” …
Which borrowers are hit hardest by the Bank of Canada’s rate hikes?
Amid elevated interest rates, variable-rate mortgage holders are paying thousands of dollars in extra interest compared to those with fixed rates, according to a new analysis by RATESDOTCA. The Bank of Canada’s interest rate hikes over the past year and a half have pushed a significant share of mortgage holders to their limit, the analysis noted. In particular, “more and more variable-rate mortgage holders with fixed monthly payments have reached their trigger rate, the point at which their payments can’t even cover their interest,” RATESDOTCA said. “To accommodate the spike in interest, many lenders are even extending amortization periods …
Analysts: July BoC hike will severely weigh on over-leveraged borrowers
Markets are expecting a 50/50 chance of another increase this month An expected Bank of Canada rate hike this month would add a significant burden on over-leveraged borrowers, according to Kambiz Kazemi, chief investment officer at Validus Risk Management. “The risk we have highlighted a number of times is regarding the leverage of the households,” Kazemi said in an interview with BNN Bloomberg. “If we raise another, in our view, 50 basis points, we’ll be at 80% of triggers on the variable mortgages — so that’s a very high number.” Kazemi said that the current unemployment rate of 5.2%, which …
Another week, another rise in fixed mortgage rates. How high could they go?
The Canadian mortgage market has been completely overtaken by fixed rate hikes for yet another week. Following the recent spike in Government of Canada bond yields, which are used to determine the price of fixed-rate mortgages, mortgage lenders, including the majority of the main banks, proceeded to raise their fixed mortgage rates. Over the past week, a number of major banks, including BMO, CIBC, and RBC, increased their advertised rates by 15 to 40 basis points. One basis point is equal to 1/100th of a percentage point, or 0.01%. Data from MortgageLogic.news shows that shorter 1- and 2-year periods saw …
Analysts: Growing number of mortgage payments going solely towards interest
According to Victor Tran, a mortgage and real estate analyst at Ratesdotca, a significant number of Canadian homeowners are finding that their payments are only going towards paying the interest on their mortgages, rather than the principal amount. Tran stated that this situation became particularly apparent when Canadian banks implemented unprecedented interest rate hikes in March 2022, as many consumers chose to significantly extend their loan amortization periods. While longer amortization periods can make monthly payments more affordable, consumers are also required to pay more interest, according to data from the Canadian Financial Consumer Agency. “I’ve had many clients with …
As interest rates rise again, what does it reflect?
The Canadian mortgage market has already seen a significant shift from floating rates to fixed rates among borrowers, and last week’s rate hike decision by the Bank of Canada will only further accelerate this trend. The 25-basis-point increase in the central bank’s policy rate means that borrowers across the country are also adjusting their mortgage rates upward. While fixed rates are also rising, many economists believe that the central bank may have further rate hikes in store for the remainder of the year. However, the recent increase in the five-year Canadian government bond yield, which has a significant impact on …
Analysts say another rate hike could be on the way
The central bank’s next policy rate announcement is scheduled for July. According to various market analysts, the existing circumstances indicate a high likelihood of another interest rate hike after June 7th. Sherry Cooper, Chief Economist at Dominion Lending Centres, stated that the Bank of Canada’s next move will be influenced by the inflation reports and two upcoming labor market reports, which will be released between now and the central bank’s policy decision next month. Currently, the Bank of Canada’s policy rate has reached its highest level in 22 years at 4.75%. Cooper mentioned, “There is a good chance of another …
Demand for variable mortgage rates down 21% compared to 2022
The popularity of variable-rate mortgages has significantly declined in the past year due to consecutive interest rate hikes by the Bank of Canada. Borrowers are now favoring fixed-rate mortgages for slightly lower costs and overall stability. Recent data from RateHub reveals that inquiries for five-year variable rates on their website accounted for only 5% of all user submissions in 2023, compared to 26% in 2022. In contrast, demand for five-year fixed mortgages has been steadily increasing, With inquiries now representing 79% of all submissions, up from 66% in 2022. In Canada, fixed-rate mortgages have traditionally been the most popular option, …
What mortgage owners need to know about the Bank of Canada’s second rate pause
The Bank of Canada’s decision to hold rates for a second consecutive time should act as a stabilizing force to Canada’s mortgage market, according to experts. Canada’s central bank elected to hold the overnight rate at 4.5 per cent Wednesday, reaffirming economists’ expectations. Last month, the Bank of Canada became the first major central bank to pause interest rate hikes. “For many mortgage holders, what this actually means is that there’s likely to be a period of stability in the next little bit, before things [interest rates] start coming down,” Leah Zlatkin, a mortgage broker and expert with LowestRates.ca, said …
How to take advantage of the new tax-free first home savings account
April 1, 2023 marked the official launch date of the tax-free first home savings account (FHSA), Canada’s newest registered savings plan. As financial institutions start offering these in the weeks and months ahead, here are five things you need to know to take full advantage of these new plans. Tax-free in; tax-free out The 2023 federal budget description of “tax-free in; tax-free out” succinctly summarizes the attractiveness of the FHSA, which gives prospective first-time homebuyers the ability to contribute up to $40,000 and save on a tax-free basis towards the purchase of a first home in Canada. The …
