This morning at its June 1, 2010 meeting, the Bank of Canada raised its key overnight lending rate (the rate at which it lends funds to chartered banks) one-quarter per cent (25 basis points) to 0.5%, its first rate hike in almost three years.
What can we expect? Banks will be increasing their prime lending rates. This is the rate upon which variable-rate mortgages are based, as well as other borrowing products such as personal loans, and some credit cards. The quarter-per cent hike translates into about $12 more per $100,000 of borrowed funds.
One thing to consider if you’re going to be renewing your mortgage or taking out a new mortgage when you buy, is that the lender discount from prime rate has been increasing (best I’ve heard is prime -0.6% lately), which may help make up for this first rate hike. Talk to an experienced mortgage broker and see what your options are.
The Bank of Canada’s move to increase rates comes amid a shaky worldwide recovery and only time will tell if more rate hikes will be necessary.
Bottom line: don’t panic. Rates are still historically low and will likely remain so for the foreseeable future. Mortgage rates have been on a generally downward trend for about 30 years.
The full Bank of Canada news release can be found here.
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