Bank of Canada raises floating rate, hikes mortgages

The Bank of Canada raised its benchmark floating rate by 25 basis points this week, a move that will affect borrowers with adjustable-payment mortgages.

Rate hike and immediate impact

For a mortgage with a 20-year balance, the increase translates to roughly $13 extra per month for every $100,000 of principal when the rate is variable.

Loans that keep a constant payment but use a floating interest component will see about $21 of each payment shift from principal to interest.

The central bank expects inflation to settle near 3% by 2027, and forward-rate data from CanDeal DNA suggests the market is pricing in three more hikes over the next year.

In response, several lenders lifted both their prime and locked-in rates, even though the cost of funding fixed-rate loans has been trending lower.

Some institutions anticipate that borrowers will rush to secure a rate after the first policy increase.

If you’re one of these worried borrowers, carefully assess the math before signing any new mortgage. Locking in long-term after fixed rates have already shot up is not the right move for many.

Current market offerings

National averages for leading banks show three-year locked rates at 4.44% (insured) and 4.64% (uninsured), while five-year terms sit at the same rate for insured loans and 4.84% (uninsured).

Floating five-year options are quoted at 3.55% for insured applicants and 3.90% for those without insurance.

Regional tables reveal deeper discounts from credit unions, Butler Mortgage and RateBuzz; the latter offers an uninsured five-year locked rate of 4.30% in Ontario and Alberta.

Well-qualified borrowers with strong credit, income and assets hunting for a conventional variable rate should call a Big Six bank like RBC, CIBC, etc. Nobody beats the megabanks’ funding costs on uninsured variables, so see what kind of discretionary discount they’re willing to slide you under the table.

Outlook for floating mortgages

Given the market’s expectation of further hikes, the gap between locked and floating pricing has narrowed, making the latter less of a high-risk gamble than earlier in the year.

Rate simulations at MortgageLogic.news still give fixed rates the slight edge on paper. For the best national insured and uninsured mortgage rates, updated daily, see the mortgage rate page. Robert McLister, BBA, is an interest rate analyst, mortgage strategist and contributing writer for the Financial Post. A former equities trader and finance graduate from the University of Michigan, Rob breaks down the mortgage trends that shape the borrowing costs and net worth of Canadian mortgage consumers. You can follow him on Twitter at @RobMclister.