Mortgage Blog
Making Sure your Mortgage Fits
Bank of Canada Increased Overnight Rate
September 8, 2022 | Posted by: Simon Lyn
I am sure all of you have seen the news of the Bank of Canada increasing the overnight rate by .75% to a total 3.25%.What does this mean for you?
If you have a static variable rate mortgage product (i.e., one based on a variable rate but with fixed payments that don't change every time the rate changes), there will come a point at which rising interest rates will require an increase to your regular payments. That is called the trigger rate. For most of you -- those with a variable rate higher than 'prime minus .80' -- you will not hit your trigger rate with today's Bank of Canada increase. But you may hit it soon if rates go up again. Once you hit the trigger rate, it means that all of your payments are going towards interest rather than principal.
If your lender's guidelines allow you to do so, you should be proactive and increase your payments now. Doing so will have the effect of increasing your trigger rate. And even though you will be paying more now, more of your money will go towards paying down your principal as opposed to paying off interest. That will be beneficial to you in the long run.
If you have any questions, please give me a call. I'd be pleased to discuss this with you further.
