The Bank of Canada recently announced its sixth hike in the year on its overnight rate by half of a percentage point, bringing it to 3.75 percent. As a Red Deer and Central Alberta area homeowner, you may worry at the thought of paying more for your home.   

We understand you. You have all the right to panic, but take your time and try to understand what is going on in our housing and mortgage market.   

This blog will discuss how the recent rate hike will impact your budget as a homeowner in Red Deer. Keep reading to learn more.  

What is going on?  

With inflation still unbelievably high, so many people have no ripple room in their incomes, so the Bank of Canada is trying to stabilize prices and tame inflation.   

While it was fun to have the 2% rates, we cannot hold onto it forever. From a macroeconomic perspective, raising the interest rates is the only way we can tame inflation and stabilize commodity prices.   

“We know adjusting to higher rates is difficult for many Canadians. We are watching that impact very closely. But unfortunately, there is no easy out to restoring price stability,” Bank of Canada governor Tiff Macklem said.  

There is actually some good news as it was anticipated to have a 0.75% increase, but BOC announced a 0.50% hike instead. However, this also indicates that more rate increases are expected soon to tame Canada’s inflation rate.  

According to Macklem, "this tightening phase will draw to a close. We are getting closer, but we are not there yet."   

According to experts, variable-rate mortgage holders are more likely to feel the immediate impacts of the interest hikes first. Economists believe that those who have a variable-rate mortgage between May 2020 and July 2022 could be forced to top up their payments.    

However, while fixed-rate mortgage holders are enjoying stability in their rates, they will also notice a significant increase in their monthly mortgage payments when they renew.   

What could you do?  

Experts say it's now time to take a step back and analyze your household situation. You also should be not afraid to shop around to ensure you get the lowest mortgage rate at renewal.  

According to rates.ca, variable-rate holders would have an increase of $28 monthly per $100,000 of their mortgage with every 0.50% increase, like what we had on Wednesday.  For instance, if your mortgage is $500,000, your monthly payment will increase $148 or if it is $1,000,000, it will increase $303. 

The site also explained that a homeowner renewing their mortgage would notice an 18% hike in their monthly payments.  

According to James Laird co-CEO of Ratehub.ca and president of mortgage brokerage CanWise Financial, what you could do will be largely based on your household economic situation and how close you are to finishing paying off your mortgage.   

For those who are maxed out and think they can't afford everything right now, going for a lock-in rate may be a better option for long-term certainty.  

However, for those who can endure short-term pain, the flexibility offered by variable rates is a good thing to consider.   

Ultimately, there's not one solution that fits all in this situation. To get a more personalized opinion tailored to your situation, it is best to connect to mortgage experts. Our team of top real estate agents in Central Alberta can help you connect to a mortgage broker. Visit our team page and give our agents a call.