Bank of Montreal, CIBC, Royal Bank of Canada, TD Bank and Scotiabank all announced they are raising their prime lending rate to 3.2 per cent, from 2.95 per cent, increasing rates by the same 0.25 percentage points as the Bank of Canada.
Borrowers who have variable rate mortgages will feel the impact immediately, with more of their payments going to cover interest. And in the longer term, those looking to get fixed rate mortgages will face higher interest rates at the banks.
Anyone who currently has a variable rate mortgage should review their current mortgage and consider if now is a good time to lock into a fixed rate mortgage. Home buyers should also acquire a pre-approval to lock-in today’s best rates for 120 days.
The expectation is that the Bank of Canada will continue to increase interest rates as Canada’s economy heats up, and lenders will continue to pass on the full cost of those hikes to consumers.
Many analysts had been expecting the Bank of Canada to increase rates in October rather than last week. The move on Wednesday has analysts expecting interest rates to go higher than they had predicted earlier. Most analysts are now calling for the Bank of Canada key lending rate to rise to 2 per cent by the end of 2018 rather than 1.5 per cent as previously predicted.
RBC says the quarter percentage point rate hike will translate into $100 million in added revenue for the bank over the next year, and some $300 million over the next five years. Higher rates could slow down Canadian consumers, and that could hit the entire economy.
But for now, Canadians don’t seem to be having trouble repaying their mortgages. Time will tell how Canadian consumers will be able to handle the interest rate hikes. If rates rise slow enough, consumers should be able to adjust to the changing environment.