The Bank of Canada is responsible for fixing the prime lending rate and is the main tool that the central bank uses to control inflation. This is the starting point for setting many interest rates in the economy. The Bank of Canada sets the rate to influence different aspects of the Canadian economy, including the exchange rate, consumer prices, and bank interest rates. A predetermined schedule is used by the Bank of Canada when they have rate announcements. Our current key policy rate is 5.00%, an increase of 0.25% from the previous benchmark interest rate of 4.75%. The next announcement is expected on September 6, 2023. Just in time for the beginning of the school year when household expenses are already overextended.
Bank of Canada’s 2023 Policy Interest Rate Schedule
Bank of Canada announces its decision for the overnight rate target eight times per year and is typically on a Wednesday. The schedule for 2023 is as follows:
- Wednesday, January 25
- Wednesday, March 8
- Wednesday, April 12
- Wednesday, June 7
- Wednesday, July 12
- Wednesday, September 6
- Wednesday, October 25
- Wednesday, December 6
What does the Bank of Canada rate hike mean for homebuyers?
Whether you are planning to enter the real estate market or are already a homebuyer, it’s cardinal to follow along with Bank of Canada’s rate announcements. Rates have a direct impact on the housing market and purchase affordability. When we expect a rate announcement, the best advice I can give is be prepared ahead of time with a rate hold. A rate hold can be given up to four months, locking in a lower interest rate on the assumption the percentage will increase. It allows your mortgage broker time to shop around for the best possible rate and package suitable to you and your budget.
Should I take a Fixed Rate or Variable Rate?
According to the Central Bank, it could take until well into 2024 for inflation to fall substantially and possibly up to 2 years for prime rate to drop to its neutral rate of mid-high 3% range for mortgage rates. We aren’t expecting a sharp drop in Central Bank rates, but a gradual decrease in two years. Traditionally a 5-year rate is a safer bet, however if you lock in a higher rate for too long, there is a risk of paying too much. A shorter 3-year fixed rate, for example, you could position yourself better to renew into a lower fixed rate in 3 years’ time.
A variable rate strategy to reduce interest rate risk could be worth considering for those who have a higher tolerance for risk. When rates begin to fall, presumably in mid 2024, the variable rate holder will benefit immediately, thus potentially leading to more savings than locking in a shorter 3-year fixed rate. It will take thicker skin in 2023 for those who choose a variable rate to ride out the higher variable rates and realize these savings over the next five years.
Connect with First Class Mortgage Services to see what strategy may be right for you. With over 75 lenders, we have the ability to create the best plan to fit your budget and financial goals as well as reduce your risk against mortgage interest rates. You can also use MyMortgageToolbox app to get prequalified in minutes to see what you qualify for based on your income and down payment.