The Bank of Canada (BoC) announced its fifth interest rate increase of the year, raising rates by another 75 basis points. This follows its July announcement where the Bank announced an interest rate hike of 1 percentage point, the largest interest rate increase since August 1998. BoC also cautioned that interest rates will continue to rise in its most recent announcement stating: “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate.”
What to Expect When Qualifying for a Mortgage
The rate hike means that the prime lending rate at all financial institutions will increase by 75 basis points. Following the previous interest rate announcement, most prospective fixed-rate borrowers faced stress tests with rates around 7% and 6% for variable-rate borrowers.
This interest rate announcement further impacts the rate borrowers will be tested against. Financial experts suggest that Canadians shopping for a mortgage should weigh all their options and remember that borrowers will often qualify for more if they choose a variable rate instead of a fixed rate.
The Impact on Canadian Real Estate
BoC’s policy rate is now at 3.25% and experts are predicting that future increases will be smaller. Throughout this year, we’ve seen the market shift from what was primarily a seller’s market throughout the peak of the pandemic to many cities being in more balanced or buyers-market territory. “Rising interest rates put downward pressure on real estate markets. Following this rate increase announcement, we may see more cities transition to buyer’s markets” explains Lauren Haw, CEO and Broker of Record of Zoocasa. This means that buyers may have more negotiating power during their home search. If you’re planning to enter the market this fall, work with a local real estate agent to understand which markets will favour you in your home-buying journey.
A Reminder to Homeowners with Existing Variable-Rate Mortgages
Canadians with existing variable-rate mortgages will see their rate rise in line with this announcement and should work with their mortgage specialist to plan for further rate increases. If you’re a homeowner with a variable-rate mortgage, you can use our free mortgage calculator to determine what your new monthly payments will be. Some lenders offer fixed payments with variable-rate mortgages which can be a great option to help homeowners budget as interest rates continue to rise. If you already have a variable-rate mortgage, speak to your mortgage broker to learn if you can switch to fixed payments mid-term.
Patti Cosgarea is an accomplished public relations professional with a passion for digital communications and all things real estate. She dedicates her creative prowess to crafting compelling content that empowers and guides North Americans on their real estate journeys.
With a keen eye for detail and a knack for storytelling, Patti ensures that Zoocasa's message resonates with its audience, whether it’s first-time home buyers or experienced investors,
making complex real estate concepts accessible to all.
Her love for real estate extends to her personal life. When she’s not analyzing Canadian and U.S. real estate data, you can find her wielding a hammer and paintbrush, renovating her townhouse in Kitchener. These DIY projects showcase her creativity and passion for design, learning as she goes to offer her insights to others working on transforming their house into a home.
Patti’s real estate insights and articles have been published in BNN Bloomberg, CTV News, the Globe and Mail, and her interviews and quotes about current market conditions can be found on the National Post, Business in Vancouver, Global News and more.