The Prime rate in Canada is currently 6.70%. Changes in the prime rate can affect your debt payments and thus your GDS and TDS ratios when applying for mortgage loans or even at the time of your mortgage renewal.
In its latest move, the Bank of Canada (BoC) has kept its policy rate fixed at 6.7% and expects inflation to be around 3% by 2023.
Canada's housing market is the largest channel for the monetary policy to affect the real economy. The BoC's assets have moderated from their peak, yet they are far above their pre-pandemic level of $120 billion.
Prime rates at Canada's financial institutions are 6.7%, the highest level over the past 22 years. The cost of borrowing has increased dramatically over the past year.
Some credit cards set their interest rate based on the Prime rate, while others are unsecured and have high interest rates to make up for the additional risk.
If the Prime rate goes up, your mortgage payment will go towards interest and less towards your mortgage principal. Some borrowers may also reach their trigger rate.
If you plan to get a variable rate mortgage, you should know how the Prime rate affects your potential mortgage rate.
Although variable rate mortgages are all based on the Prime rate, lenders can set a modifier that determines how much higher or lower the variable rate is relative to the Prime rate.
The Prime rate tends to follow the Bank of Canada target overnight rate because the overnight rate influences a bank's cost of funds. If the overnight rate goes down, the banks can pass on the savings to their customers.
If you're thinking of converting your variable rate to a fixed rate, please call today to discuss your options. Please call direct @ 647-773-4849.
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929