By November 1, 2018—
There’s an impending feeling looming around the homeowners of Vancouver. Maybe you’ve felt it too. Anxiety has already set in among many people regarding their finances.
With all the uncertainty that we’ve seen in the market, it’s understandable that some might have reservations about buying into the housing market. Especially with the latest news we’ve been hearing.
Yes, it’s true. Borrowing money has just been made harder. You’ll now have to pay more on interest to the Bank of Canada as they’ve hiked up their interest rates. And they seemingly did so overnight.
How much more is the interest now?
For the first time since the summer of 2017, the central bank delivered a quarter-point rate increase, bringing the benchmark to 1.75 per cent. The rate is now higher than it’s been in a decade.
Why has interest been increased?
From our understanding, it was the central bank’s first policy decision since Canada made an agreement with the States and Mexico on the updated North American free trade deal. The U.S.-Mexico-Canada Agreement (USMCA) is said to reduce trade policy uncertainty in North America. With this agreement made, the Canadian economy will supposedly continue to operate closer to its potential and will see a more balanced growth.
However, to maintain this “balance”, more increases will continue to be made in order to keep inflation from rising above the two per cent mid-point of the target range. Currently, the neutral rate is between 2.5 and 3.5 per cent.
A rundown of events
The Canadian economy is hot and to hold off a rise in inflation, the Canadian bank is balancing the economy through an increase of mortgage rates. The idea is to cool the economy down, but to do so, it’s at the cost of home buyers.
This basically means, for example, someone with a $400,000 variable mortgage rate on a condo with 25 years to go will see their 2.75 per cent rate jump to 3 per cent. They’d have to pay about $51 more each month compared to the previous month. But compared to the previous spring, that same borrower would be paying $250 more a month.
Who will be hit the hardest?
Those who feel the effects of the increased mortgage interest the strongest are likely to be first time home buyers.
The next scheduled date for announcing the overnight rate target is December 5, 2018.