Hey Everyone,
On Wednesday the Bank of Canada raised its rate a quarter point, from 2.25% to 2.50%. It's the first increase since July 2023, and prime moves up to 4.70%.
You'd expect a rate hike to cool the market off, but that's not what I'm seeing this week.
Those with rate holds are now looking at buying while they have the best rate secured. The market is heating up, and I'm hearing of properties that have been silent for months suddenly having multiple showings booked for the same day.
In the Kootenays. At the end of October. With the snow tires going on.
Wait. Rates went up and people are buying more?
Yep.
What a rate hold does
When you get pre-approved, your lender can hold a rate for you while you shop, usually somewhere between 90 and 120 days depending on the lender. It costs nothing. If rates go up during that window, you keep the held rate, and if they drop, most lenders will give you the lower one.
Back in August I told you I was steering my own clients to fixed and getting holds in place before fall. I thought the Bank might move in September. I was one meeting early, which for a mortgage guy is about as close to psychic as it gets.
A lot of you took the hold. Those rates were set before Wednesday, and since the Bank says another increase may be needed, the rate sitting in your back pocket is likely the best one you'll see for a while.
Every hold has an expiry date, though, and that's what's lighting a fire under the market. The people who were browsing in September are booking showings in October, because a hold that runs out before you write an offer doesn't do you much good.
And a rate change doesn't only change how much your payment is. It changes how much you can buy. Lenders base your approval on your rate, so the same income qualifies for a smaller mortgage at a higher one. As a rough example, a quarter point can knock about $11,000 off a $500,000 approval. Your hold is the best rate you're going to get, but once it expires, you may qualify for less than you do today.
Why the Bank did it
Energy prices. With the Middle East conflict keeping oil and gas expensive, the Bank is worried those costs will spread into the price of everything else. Headline inflation hit 3.1% in September, and they want to get ahead of it before it settles in.
The Bank even admitted this one is "not going to feel good." Their next decision is December 9.
If you're on a variable rate
Your rate follows prime, so it went up Wednesday. Depending on your mortgage, either your payment rises or more of the same payment now goes to interest. Your statement will tell you which kind you have.
So, one question.
Do you have a rate hold right now?
Hit reply with the date it expires. If you don't have one, just reply "no hold." Either way, I'll tell you where you stand at today's rates. No pitch.
-Andrew
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