Bank of Canada Raises the Interest Rate - January 2018
The country’s biggest banks raised their prime rate after the Bank of Canada hiked its overnight lending rate Wednesday by a quarter of a percentage point to 1.25 per cent.
The Canadian economy has been doing well over the last few months and as a result the Bank of Canada has raised the interest rate by .25%. They noted that the cost of money will be going up due to very strong employment and a GDP growth in 2017. One of the key factors behind this interest rate hike is the solid economic numbers from the Canadian economy.
Consumption and residential investment have been much stronger than anticipated, reflecting a strong employment growth. Business investment has been increasing at a solid pace, and investment intentions remain positive. Exports have been weaker than expected although, apart from cross-border shifts in automotive production, there have been positive signs in most other categories.
What does this mean if you have a mortgage?
This new interest rate will affect those that have a variable mortgage or a Line of Credit component to their mortgage.
The central bank hinted that there might be more increases in the interest rate, it does note there is also some uncertainty when it comes to the North American Free Trade Agreement (NAFTA). NAFTA might play a part in future interest rates, due to the uncertainty surrounding it. Another factor that may affect future interest rates is the household debt that most Canadians have.
With the new higher interest rates, this will most likely lead to slower sales in residential homes, due to a combination of higher interest rates, as well as the new stricter mortgage guidelines. This will help to steady out the mortgage market as newer home buyers get use to the stringent rules and higher rates.