Banks hike Prime Rate as BoC pumps up Policy Interest Rate

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Key Overnight rate increase

Banks hiked prime rate as BoC pumps up the Policy Interest Rate. The big banks wasted no time today in increasing the prime rate, as the Bank of Canada raised the key overnight rate. This is the second such increase in the last couple of months. We have seen the rate go from .50% to 1% since July 2017 . The impact of this change will be most felt by those who are carrying variable rate mortgages, as well as homeowners with Home Lines of Credit otherwise known as HELOCs. As it stands the new Prime rate for most financial institutions and banks has been raised to 3.2% this is up from 2.95%.

The next meeting of the BoC will take place on the 25th of October 2017 the Bank of Canada will be releasing at that time its Monetary Policy Report as well it will be issuing out a new rate announcement. It is not expected that the BoC will be increasing the rates once again in October but it is definitely not off the table.

Explanation of the OverNight Rate is Directly from Bank Of CANADA

The Target for the Overnight Rate is the main tool used by the Bank of Canada to conduct monetary
policy — for this reason, it is also known as the policy  interest rate. It tells major financial institutions the
average interest rate that the Bank wants to see in  the market where they lend each other money “overnight.”
When the Bank changes the Target for the  Overnight Rate, this change affects other interest
rates in the economy. 

Canada’s major financial institutions routinely borrow and lend money overnight among themselves, in
order to cover their transactions at the end of the day.

The impact of today’s interest rate increase, caused the Canadian Dollar to gain some strength against the Greenback (US Dollar). Currently $ 1CAD = 0.81USD. As well Total CPI inflation is hovering at 1.2% well below what it should be at.

For consumers that are not at ease with the latest news. The best advise I can give you is to start a conversation with your Mortgage Broker or Banker to discuss what options are available to you if you choose to convert the variable rates into fixed rate mortgages. In the last month we have spoken to hundreds of our clients in some cases we advised to convert the variables and in other cases, we advised clients to stay the course. It all depends on the spread that you have between the possible fixed rate you can convert to Vs. what is your current variable rate.

If you have any questions about this or any other blog please do not hesitate to contact me.

Thank you for reading

Terry Kilakos

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