Bank of Canada rate hike expected March 2

March 2, 2022



The Bank of Canada is widely expected to raise its overnight lending rate during a scheduled meeting March 2, 2022, for the first time since the pandemic started in 2020.
How is the anticipation of a rate hike affecting the mortgage market?  
It is already being seen, according to Toronto-based Sung Lee, a mortgage broker with Rates.ca.
“There are a few common themes that often re-appear in advance of anticipated rate hikes,” Lee noted. “A surge of pre-approval requests to lock in rates, increased uncertainty amongst clients on whether to choose fixed or variable and a renewed interest in terms beyond the ever-popular five-year. We’ve seen a slight uptick in 10-year term inquiries, which have historically represented only 10 per cent of mortgages in Canada. With the prospect of multiple rate hikes over the next couple of years, some clients are willing to pay a premium for that longer-term certainty.” 
Bond yields have reached pre-pandemic levels, resulting in lenders increasing their fixed-rate mortgages. As of February 24, 2022, five-year terms ranged from 2.69 per cent to 3.09 per cent. Most five-year variable-rate mortgage rates are in the 1.2 per cent to 1.5 per cent range, according to Rates.ca.
The low-interest rate environment of the past two years spurred increased interest in variable-rate mortgages over fixed-rates. When the overnight rate rises, banks typically follow suit by increasing their prime rates—impacting all variable-rate credit products.
Choosing between a fixed-rate and variable-rate mortgage is always the most difficult in a rising rate environment, Lee said. 
According to Canada Mortgage and Housing Corp. as of the third quarter of 2021, the average mortgage amount in Canada was $371,584. For a homeowner carrying a variable-rate mortgage of 1.5 per cent with a 25-year amortization, the monthly mortgage payment would be $1,485.
Some analysts expect the Bank of Canada to raise the overnight rate by as much as 175 basis points by the end of 2022, which would increase the rate to 3.25 per cent, making the average monthly payment $1,807—a difference of $322 per month.  
Most expect the March 2 rate hike to be from 0.25 per cent to a maximum of 0.50 per cent. The current rate is 0.25 per cent.