Rate Increases & New Mortgage Stress Test

Early on Wednesday, July 12th 2017, the Bank Of Canada increased the over night rate to 3/4% (0.75%). This is the first time in 7 years we have seen this type of an increase. Call me if you have questions regarding how this directly affects you personally at 604 897 2741 Dave Browne.

The increase is 0.25% BPS but this is potentially a sign of more increases to come. Historically speaking, the drop from 4.50% by BoC rates began 9 years ago. Due to compounding economic turmoil’s over the last 9 years such as the fall in oil prices last year, rates have remained at historical low rates hovering near 0.50%.

Well I guess the low rate Party’s starting to wind down.

The chart below shows in 2007 the Bank Of Canada Rate was 4.50%. Today, even with the increase, we sit at 0.75%.

Here is some of the statement accompanying the rate decision. Ultimately the central bank said the Canadian economy has been robust, fuelled by household spending.

“As a result, a significant amount of economic slack has been absorbed,” the bank said, adding that the remaining slack is expected to be gone around the end of this year, which is earlier than the bank anticipated in its April  Monetary Policy Report.

The move means consumers will likely pay more for borrowing such as variable-rate mortgages and lines of credit.

In the wake of the rate hike, the Canadian dollar shot up. The loonie was trading up 0.64 of a cent at 78.03 cents US late Wednesday morning. “


Question & Answer time

Will this effect mortgage rates?

-Mortgage lenders will likely follow suit and increase their prime lending rate to match the BoC’s move.  This will effect variable rate mortgages and HELOCS.

Will variable mortgage rates go up?

Short answer is Yes.

Will rates keep going up?

The Canadian economy has had better than expected growth in 2017, which has been driven by household spending. If the economy continues to report growth as it has in the past 12 months, both fixed and variable rates are likely to rise at a gradual pace.   What is the long term outlook?

Long term outlook is for higher rates if the economy is working good. This is due to a worldwide monetary tightening policy. That being said, we will not be seeing dramatic rate increases overnight. Rates are currently still at historic lows.

As for the introduction of a second mandatory stress test rule in the last 8 months, what does this mean to you? According to what we have read the B20 rule simply matches the rate test that is already in effect for High Ratio Mortgage borrowers.

Last October those high ratio buyers with only 5%, 10% or 15% down payment saw a drop in their ability to buy a home by 20%. If you were preapproved for a $400,000 purchase, that approval dropped to $320,000 over night.

This will now happen across the board to those of us that have more than 20% down payment. Regardless of your strength of income, assets and net worth. We are working through some alternative options that will lessen this impact but this will impact the real estate market. These may only be temporary changes until the real estate market cools in Canada’s biggest markets but it is fair to say this will impact buyers and sellers ability to qualify for mortgages without co-signors or additional down payment monies.

By Referral Mortgage Consultants*

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Dave  604 897 2741 Jordi 604 615 1312 www.AbbotsfordsMortgageBroker.com




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*By Referral Mortgage Consultants – doing business as BRMC is: Verico Preferred Financing Inc / Verico Canadian 1st Mortgage Corp which have a co-brokering agreement and there is a common Mortgage relationship and are licensed with the Verico Dreyer Group. Mortgage ownership, that employees of both Mortgage companies may review, advise and help process the Mortgage files. That Verico Preferred Financing Inc & Verico Canadian 1st Mortgage Corp share the some expense and income from mortgages. Kim Langille Featured on thess site is an unlicensed mortgage assistant only, not a Mortgage Consultant. Jordi Browne featured on this site is the Mortgage Broker of record. “The Broker” is Jordi Browne. Jordi Browne also holds a Life Insurance License and represents Verico Canadian 1st Mortgage Corp. Dave Browne featured on this site has a Life Insurance License too but is an independent agent– Jordi and Dave Browne co-broker life insurance files and share expenses, all income retained by Verico Canadian 1st Mortgage Corp. 

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