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  • Writer's pictureBrandon Nishi

Bank of Canada Raises Interest Rate on July 12, 2023: Implications and Analysis

After careful consideration of economic indicators and market trends, the Bank of Canada has decided to raise the interest rate by 25 basis points (A new overnight rate of 5%). This move is primarily driven by factors such as inflationary pressures, robust economic growth, and a need to prevent excessive credit expansion. By raising interest rates, the central bank aims to balance economic growth with inflation control.

Bank of Canada Interest Rate Schedule
Bank of Canada Interest Rate Schedule

Sourced: Bank of Canada


How does this affect my mortgage?


When the central bank raises or lowers the overnight rate, it affects the cost of borrowing for financial institutions. Generally, if the central bank increases the overnight rate, it becomes more expensive for banks to borrow money. In response, banks may raise their prime rate, which is the rate they charge their most creditworthy customers. Thus, directly impacting the homeowner with the mortgage.


In general, a 0.25% (25 basis points) increase in the interest rate would result in an approximate monthly increment of $16 per $100,000 of mortgage amount over a 30-year amortization period.


For reference:

  • Mortgage: $500,000

  • Interest Rate: 6.25% vs. 6.50%

  • Amortization: 30 year

  • Term: 5 Years

6.25%

6.50%

Difference

Payment

$3,079

$3,160

$82/month

Term Interest

$151,401

$157,675

$6,274 over a 5 year term

Principal Paid

$33,314

$31,945

$1,369 over a 5 year term

Common Questions

What happens if I can't keep up with payments?

No one expected the variable interest rate to rise so quickly! This is the highest it's been in the last 22 years. If you're having trouble keeping up with payments, there may be a few solutions.

  • Look at switching to a fixed rate

  • Refinancing

  • Apply for a HELOC

  • Look at a 2nd mortgage

I can help review and calculate all your options. Please feel free to give me a call at anytime.

Will this affect my fixed interest rate?


Questions? Contact me today!

Brandon Nishi | Your Mortgage Specialist

Phone: 604-353-5809

Office: 1665 Kingsway, Vancouver BC, V5N 2S2

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