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Bank of Canada Rate Update July 13, 2022

July 14, 2022 | Posted by: Bailey Coats

As of 10AM EST on July 13, 2022, the Bank of Canada has increased the Overnight Rate by 1.00%. Variable rate mortgages, line of credits, student loans, and variable rate personal loans, are all based on the Prime Rate. Generally speaking, the Prime Rate moves along with the Overnight Rate as a result of these announcements.

An increase was to be expected today, as in the last Bank of Canada update, they indicated that there would be a number of increases this year in an effort to combat inflation in the current markets.

What's next?
This will likely not be the last rate increase we will see. The Overnight Rate is likely going to increase a few more times this year as part of the Bank of Canada's toolkit to combat inflation. When the overnight rate is increased, it creates an inverse effect of cooling spending and thereby curbing inflation. I know we have all been feeling the price of groceries and gas! We are here to help and advise on the best course of action for borrowers’ long-term mortgage goals.

The media can create a panicked frenzy when interest rates rise (like they have recently). Below are some questions we've been asked recently regarding interest rates rising:

Q: With Prime Rate increasing, should I be converting to fixed?
A: Everyone’s scenario is unique. Factors like what your current rate is, length of time to maturity and fixed rate options all come into play. Contact us so we can provide input on your individual situation.
Q: If I get a pre-approval/rate hold will it protect me against Prime Rate increases?
A: No - a pre-approval/rate hold on a variable rate guarantees the discount to Prime. For example, if your rate hold is for a rate of Prime minus 0.90%, that is what you’re guaranteed. If Prime fluctuates within your pre- approval period, your applicable rate will fluctuate also.
Q: Why is Prime Rate increasing by so much and when will it stabilize?
A: The Bank of Canada uses their Overnight Rate to stimulate or slow the economy down. Currently inflation is incredibly high so the increase in Prime is meant to slow it down. Expectations are that Prime will continue to increase until inflation comes back down to the Bank of Canada’s comfort level of around 2%. While Prime has increased multiple times this year, with today's increase of 1%, Prime Rate is now 4.70%. To put that into perspective, the Prime Rate in January 2020 was 3.95%, so todays 1% increase is just now bringing it above where it was pre-COVID.

Q: With rates being so volatile lately, should I be getting a pre-approval/rate hold if I’m considering a move?
A: Absolutely. Even during more stable times, we recommend getting a pre-approval/rate hold to protect yourself against the risk of rising rates while you’re looking for your next home.

Q: How often does the Prime rate change?
A: On eight pre-determined dates per calendar year, the Bank of Canada makes announcements relative to changes to their Overnight Rate. The Prime Rate moves along with the Overnight Rate as a result of those announcements.

Q: Does Prime rate impact my fixed rate mortgage?
A: The Bank of Canada announcements and changes to Prime do not affect fixed rates as they move independently from variable rates as a result of movement in the Bond markets.

If you feel you are unsure what to do next or want a review, reach out and let’s chat – we are here to help!

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