Although 4.5% mortgage rates are still historically low compared to the double-digit rates seen at the tail end of the '80s boom, it's the rapid change that matters, a new BMO Economics report says 🔨 interestrates bankofcanada realestatenews
The rate hike, announced last week, was shockingly higher than the anticipated 75 basis point rise. It also marked the largest interest rate increase since 1998, and brought the BoC’s total percentage increase this year to 2.25%. Even before last week’s announcement, Canadians were already feeling the effects of the three earlier rate hikes, especially those in Ontario and British Columbia where the high price of real estate makes residents more sensitive to rate changes.
“The mortgage yield curve is flattening quickly, but the broad housing market is now being priced with cost of funds around 4.5% on average — a major shift in a short period of time,” the report reads. “In fact, going from 1.5% to 4.5% on the same loan value would crank the monthly mortgage payment by almost 40%, making the current episode an even more abrupt shift than the late-1980s after adjusting for income levels,” the report reads.
“Each mortgage will have its own unique terms with respect to when payments start to move higher, but for those that caught the low in variable rates, we’ll probably be there soon,” the report says.
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