Bank of Canada Mortgage Rate Announcement - April 2022
April 13, 2022 | Posted by: Ron Chan
Last week we published an article that detailed Winnipeg mortgage rates predictions for the months ahead. We joined Canada's big banks in the consensus that the Bank of Canada would raise the Policy rate (again) with their April 13th announcement. This morning the Bank of Canada issued their promised press release. Were we (and the big banks) correct? If so, will mortgage rates rise through the spring and summer? Let's find out.
What Home Buyers Need to Know About the April 2022 Bank of Canada Announcement Regarding Lending Rates
A Supersized Rate Hike?
The Bank of Canada has just announced a 50 basis-point hike, which elevates the Policy rate to 1-percent. This is up from .5% in March, and up from the .25% in April and nearly two years prior, before the world got flipped on its head. Leading up to today's announcement, media (Globe & Mail, Financial Post, etc.) had been telling home buyers to prepare for a 'supersized' Policy rate hike. Is a 50 basis-point increase as dramatic as they make it seem? That's a fair question, seeing as the last time the central bank raised the rate by half a percentage point was over two decades ago.
The jump up from .5 to 1-percent is indeed a big deal. But should it scare new buyers away from buying a home?
Let's put the 1% rate into perspective by looking back before the pandemic and economic lockdowns. In April of 2019 the Policy rate was 1.75%. In fact, it was 1.75% in March 2020 before dropping to 1.25% in April of the same year. Only after that did the rate begin to plummet towards .25% as a means for the Bank of Canada to encourage spending. So you see, a 1% Policy rate is not so 'supersized' when compared to what it was. In fact, the rate hasn't been lower than 1-percent since 2017. We encourage you to use this tool which allows you to chart Canadian interest rates and monetary policy variables for the last 10-years. In doing so, new buyers will find that the current hike in the cost of getting a mortgage is not something that should scare them away from investing in their (your) future. However, if you wait for the summer, autumn, winter, or 2023 you can expect mortgage rates to grow even higher. Experts predict that the Bank of Canada will keep increasing the rate through 2022. It will probably be more incremental (as opposed to a 50 basis-point hike) than this most current increase, but why pay more by waiting? Will the rate once again return to pre-pandemic levels of 1.75% in 2022? It's likely.
It's important to note that it's variable rate mortgages that are vulnerable to Bank of Canada increases in the Policy rate. It's for this reason that new buyers are instead considering fixed mortgage rates. While the interest on a fixed rate is more (at press) new buyers enjoy the peace of mind of not having to follow every Bank of Canada announcement. It can get stressful. But will fixed rates rise too? Fixed rates are tied to Canadian bond yields. Bond yields are currently at their highest level in a decade. Since this directly influences the cost of a 5-year fixed rate mortgage, we're seeing increases here too. For example, last week we reported how CIBC is marketing their 5-year closed fixed rate at 3.89 percent. Compare this to fixed rates that sat at just around 2% in the summer of 2021. It's still very affordable, but we do encourage buyers to act quickly. It will also be important to work with a mortgage broker who can to get access to lower mortgage rates and first-time buyer incentive programs. You'll need these options more than ever before, especially if you wait to get pre-approved on a mortgage much longer.
Whether considering a variable or fixed rate mortgage, please contact Ron Chan today at 204.290.9950 today to discuss options best suited to YOU.