What the latest interest rate hike means for variable-rate mortgages

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%, and the prime rate to 7.2%.

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%, 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%, 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%, 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%, 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%, 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%, 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%, 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%, over 25 years, this couple would pay over $640,000 in interest over the life of their mortgage.

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%, 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.

The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.