Bank of Canada​’s Final Rate​ Hike​ for 2022
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Brianna Frith

Author, Founder at Endhome

Inflation is out of control, and interest rates are at an all-time high.

On December 7, 2022, the Bank of Canada, once again in its final rate announcement of the year, increased its overnight lending rate by 50 basis points to 4.25%, which will result in a prime rate of 6.45%, making this the highest rate for Canada since 2008. It’s a big deal for most mortgage holders who are approaching renewal and for current variable-rate borrowers who are facing payment increases that are unbearable.

Today’s rate increase holds the greatest implications for variable-rate mortgage holders, as their interest rates are immediately affected by the BoC’s overnight lending rate causing their monthly payments to rise. Lenders use this rate as the benchmark for their prime borrowing rate, which in turn sets the pricing for their variable products.

Those with fixed monthly mortgage payments will instead see more of their payment go towards interest rather than their principal debt.

Rate hikes increase the risk for these borrowers to hit their trigger rate, meaning their mortgage principal no longer decreases when they make payments and instead only covers their interest portion. In more severe instances, borrowers may hit their trigger point, meaning their overall mortgage balance has exploded due to rising interest costs, diminishing any built-up equity and exceeding their original mortgage value. In both of these instances, borrowers will be contacted by their lender to discuss their options, which can include making a larger lump sum payment or extending their overall mortgage amortization.

The next expected announcement from the BoC is on January 25, 2023.

Every homeowner is affected in some way, and as professionals we should come together to support our clients as they navigate through this bumpy ride.

What goes up must come down right?

Let’s not forget the bright future of the housing market for 2023 and beyond.