What a Quarter Point Really Means for Homeowners

by Shawn Lackie

The Bank of Canada has resisted raising interest rates, over a number of announcements, in the last year or so, with good reason. I am not an expert on exactly how this impacts buyers, but I know someone who does.

Brad Vokins, from Dominion Lending Centres, has been in the business for over 20 years and has accumulated a wealth of knowledge along the way. I have always deferred to the experts in this business, so I’m not going to stop now. Especially with a topic as important as this one.

So, take it away Brad. “A quarter of a percentage point doesn't sound like much. But when it comes to your mortgage, that small number can move real money in or out of your monthly budget. Here's a simple way to picture it. The average home, in Durham Region, is selling for around $834,000, right now. [If we assume] a typical 20 percent down payment, that works out to a mortgage of roughly $667,000. On a mortgage that size, a 0.25 percent change in your interest rate shifts your payment by about $97 a month. That's roughly $1,164 a year. Not life changing, on its own, but enough to matter when you're budgeting for a family, a car payment, or just groceries.

So where are rates headed? The Bank of Canada held its key rate at 2.25 percent, for the seventh straight time, on September 2nd, but the tone has shifted. The Bank flagged, tariffs and rising oil prices are now pushing inflation risk upward, not downward, and said, it's prepared to raise rates if the pressure doesn't ease.

That's a real change from the wait and see posture we saw earlier this year. Two things are driving that shift.

The first is oil. The widening conflict between the U.S. and Iran has pushed crude prices sharply higher; and higher gas prices feed directly into what we pay for everything else.

The second is trade. Canada is rolling out $27.6 billion in dollar for dollar retaliatory tariffs on U.S. Goods, starting September 8th, matching a new U.S. tariff on Canadian exports. Both are adding cost pressure to the economy, at the same time.

There's also a quieter effect already underway. Government bond yields jumped to a two year high, this week, and fixed mortgage rates are priced off those yields, not off the Bank's overnight rate. Which means fixed rates can climb before the Bank even makes a move, and lenders have already started nudging their offers up. Put simply, the "rates will just hold steady" story, from a few months ago, is looking shakier by the week. A hike before year end is now a real possibility, and the big banks, who already expected increases in 2027, feel more confident in that call today.

So what does this mean for you? If you're shopping for a mortgage, this is a good week to have that rate conversation, instead of waiting it out. The direction of travel is up, and it could move faster than expected. If you're renewing soon, talk to your lender or broker now, so a quarter point move (or two) doesn't catch your budget off guard.” Like I said, the man knows his business and I am glad I can call on him for advice.

Feel free to check out this story and more on my blog site at: https://slackie14.wixsite.com/buy-sell-and-more.