By the numbers: What the latest interest rate hike means for your mortgage

Hey there, time traveller!
This article was published 13/07/2023 (911 days ago), so information in it may no longer be current.

This week, the Bank of Canada hiked interest rates yet again, raising its key interest rate by a quarter of a percentage point to 5 per cent, and the prime rate to 7.2 per cent.

That means the cost of borrowing in this country is now the highest it’s been since 2001. Here’s a by-the-numbers look at how that has been impacting Canadians with mortgages:

A couple in St. John’s, Newfoundland, with a $245,000, 25-year variable-rate mortgage:

In March, 2022, based on a prime rate at the time of 2.7 per cent, this couple’s monthly payment would have been $1,122.07.

With a variable-rate mortgage, this couple’s payment has increased 10 times with each Bank of Canada rate hike since then.

At today’s prime rate of 7.2 per cent, these St. John’s homeowners will need to make monthly payments of $1,746.38 — or an extra $624 a month compared to what they were paying 16 months ago.

At an interest rate of 2.7 per cent, over 25 years, this couple would pay over $91,000 in interest over the life of their mortgage.

At an interest rate of 7.2 per cent, over 25 years, this couple would pay close to $279,000 in interest over the life of their mortgage.

A couple in Vancouver, B.C., with a $563,000, 25-year variable mortgage:

In March, 2022, based on a prime rate of 2.7 per cent, this couple’s monthly payment would have been $2,578.47.

With a variable-rate mortgage, this couple’s payment has increased 10 times with each Bank of Canada rate hike since then.

At today’s prime rate of 7.2 per cent, these Vancouver homeowners will need to make monthly payments of $4,013.11 — or an extra $1,434 a month compared to what they were paying 16 months ago.

At an interest rate of 2.7 per cent, over 25 years, this couple would pay over $210,000 in interest over the life of their mortgage.

At an interest rate of 7.2 per cent, over 25 years, this couple would pay over $640,000 in interest over the life of their mortgage.

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On Wednesday, Bank of Canada governor Tiff Macklem appeared to leave the door open to the possibility of future rate hikes, although many economists still expect this to be the last rate hike of the year.

If interest rates did go up two more times, to a prime rate of 7.7 per cent, the hypothetical St. John’s couple would be facing a monthly payment of $1,823, while our B.C. homeowners would need to pay $4,189 monthly.

This report by The Canadian Press was first published July 13, 2023.