The Bank of Canada is widely expected to hike its benchmark interest rate for the third time in a year this morning.
After staying on the sidelines for the better part of a decade following the financial crisis, Canada’s central bank raised its key interest rate twice last year, to 1 per cent.
After a slew of data suggesting Canada’s economy is growing solidly, and the job market is positively booming, experts say the central bank is likely to raise its key lending rate by 25 points to 1.25 per cent — a level not seen since 2009.
To debt-laden Canadians, even tiny hikes will add up fast. A homeowner today with a $300,000 25-year mortgage can easily get a variable rate starting at 3 per cent, costing them $1,419.74 a month. But if their lender hikes their rate three times to keep pace with the Bank of Canada, that monthly payment rises to $1,537.67 — an extra $100 a month.
If the central bank hikes its lending rate, the big banks will follow move.
Expect variable-rate loans to go up. And although fixed-rate mortgages are more tied to what’s happening in the bond market than to the central bank’s rate, it’s worth noting that four of Canada’s five biggest lenders raised their posted rates for a five-year fixed-rate loan in recent days.