The cost of borrowing is officially on the rise.
Following the supersized 0.5% increase implemented yesterday by the Bank of Canada, the nation's largest consumer lenders are factoring higher interest rates into their pricing for variable-rate products, with Prime rates up to 3.2% across the board.
Scotiabank is raising its prime rate by a full percent to 3.2% effective April 14, while Bank of Montreal increased its prime rate from 2.7% to 3.2%.
Both CIBC and TD Bank also increased their prime rates to 3.2% from 2.7%, RBC also joined the other chartered banks and hiked its prime rate to 3.2% from 2.7%.
This marks a turnaround from the record-low interest rate environment borrowers have been enjoying in past years; the central bank dropped its overnight lending rate to 0.25% in the wake of the COVID-19 pandemic in March 2020, where it stayed until March 2 of this year, when it was raised by 0.25%. Yesterday's half-point hike brings the BoC's trend-setting Overnight Lending Rate to 1%.
Variable-rate mortgage holders, and those coming up for new or renewing mortgages, will be most immediately impacted by the rate increase; for those with market-linked debt, it's calculated that a 0.5% increases works out to $26 more per month on every $100,000 loan; for an average mortgage holder in the GTA carrying $600,000, they’ll see an increase of $156 per month.
The BoC's hiking mandate is also far from finished: markets have priced in the likelihood of another three 0.5% increases before the end of 2022, with the goal of achieving a neutral rate of 2% by the beginning of 2023. This is anticipated to have an eventual softening impact on scorching real estate prices, as prospective home buyers see their purchasing power reduced at a time when the overall cost of living is at a 31-year high; and consumers can only expect for Prime rates to climb upward in the coming months as a result.