As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update on the recent Bank of Canada announcement.

If you are like me I’ve been waiting all morning for this to see what direction the Bank of Canada was going to take.  As of 10AM EST on July 13, 2022, the Bank of Canada has increased their Overnight Rate by a full 1%.

This exceeds what most had forecast but, as in the last Bank of Canada update there were indications that there would be a number of increases this year in an effort to combat inflation in the current markets.

What’s next?

This will likely not be the last rate increase we will see. The Overnight Rate is likely going to increase a few more times this year as part of the Bank’s toolkit combat inflation. When the Bank of Canada raises the overnight rate, it creates an inverse effect of cooling spending and thereby curbing inflation. I know we have all been feeling the price of groceries and gas, but don’t panic! We are here to help and advise you on the best course of action for you and your long-term goals.

As a rule of thumb, if your interest rate is still less than 3%, it does not make sense to convert due to the interest rate rising. We can help work with you to develop strategies like increasing payments or the frequency of your payments to help mitigate the risk of higher interest rates.

Your decision should be based on your financial situation, mortgage terms, current interest rate, mortgage balance and future plans. Everyone’s situation is different so having a customized mortgage that meets your needs – and not the lenders – is the way to go!

If you feel you are unsure what to do next – we are here to help!


Lenders and the media can create a panicked frenzy when interest rates rise (like they have recently), which might encourage you to think about locking in now in fear of rates going up again. This means more profit for the lender, a longer financing commitment from you and difficulty breaking that mortgage later!

Below are some questions we’ve been asked recently regarding

interest rates rising. Have you asked yourself or someone else any of these lately?

Q: With the Prime Rate expected to rise, should I be looking at converting to fixed?

A: Everyone’s scenario is unique. Factors like what your current rate is, length of time to maturity and fixed rate options all come into play. Contact us so we can provide input on your situation.

Q: If I get a pre-approval/rate hold will it protect me against the Prime Rate increasing?

A: No. A pre-approval/rate hold on a variable rate guarantees the discount to Prime. For example, if your rate hold is for a rate of Prime minus 0.60%, that is what you’re guaranteed. If Prime fluctuates within your pre-approval period, your applicable rate will fluctuate also.

Q: Why is Prime increasing by so much and when will it stabilize?

A: The Bank of Canada uses their Overnight Rate to stimulate or slow the economy down. Currently inflation is incredibly high so the increase in Prime is meant to slow it down.

Expectations are that Prime will continue to increase until inflation comes back down to the Bank of Canada’s comfort level of around 2%. While Prime has increased by 0.75% in the past two Bank of Canada announcement, resulting in the current Prime Rate of 3.20%, to put that into perspective, the Prime Rate in January 2020 was 3.95%. So, we’re still below where it was pre-COVID.

Q: With rates being so volatile lately, should I be getting a pre-approval/rate hold if I’m considering a move?

A: Absolutely. Even during more stable times, we recommend getting a pre-approval/rate hold to protect yourself against the risk of rising rates while you’re looking for your next home.

Q: How often does the Prime rate change?

A: On eight pre-determined dates per calendar year, the Bank of Canada makes announcements relative to changes to their Overnight Rate. Generally speaking, the Prime Rate moves along with the Overnight Rate as a result of those announcements.

Q: I heard the Bank of Canada is raising “rates” next week, is that true?

A: It’s widely expected that the Bank of Canada will increase its Overnight Rate, which has an impact over the Prime Rate. Any changes to the Prime rate will impact variable rate credit products that are tied to the Prime Rate.

However, the Bank of Canada announcements and changes to Prime do not affect fixed rates as they move independently from variable rates as a result of movement in the Bond markets.

If you feel you are unsure what to do next or want a review of your financial assets and liabilities, reach out and let’s chat –  we are here to help and have the resources!

Signature Mortgage Group