Today was the 6th Bank of Canada announcement, and we got a little reprieve from increases with them deciding to hold the overnight lending rate at 5%, which means the prime rate will remain at 7.2%.

So what does that mean for you in a practical sense? Well essentially that if you are in a variable rate mortgage or have a HELOC, you won’t see an increase to your interest rate or payments. So you don’t have to take any action, nothing will change.

I know for a lot of people it’s confusing when we look at overnight rate and how that impacts the prime rate and how that trickles to impacting your mortgage or heloc, so let’s dig in.

The overnight rate is essentially the rate that banks can borrow money from the government at. The bank will then turn around and lend that money to you, the end borrower. So when the overnight rate goes up, the bank wants to make sure they still have a profit margin so they increase the prime rate in proportion to what the increase to the overnight rate was.

So how does that impact your mortgage? If you’re in a variable rate mortgage, your interest rate is quoted to you as prime minus something, so for example, prime minus 1%, that means at today’s rates, your interest rate would be 6.2%, If prime goes up by 0.25% to 7.45%, now your interest rate is 6.45%. The same applies to a HELOC.

Hopefully that clears up some of the mystery around why the Bank of Canada announcements are so critical and why we pay close attention.

There are 8 announcements every year with the next coming on October 25th! Until then, enjoy the break from increases!