Interest Rates set to increase by 0.50%
In its statement accompanying the decision, the Bank said, “With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further.”
As such, we can expect the Prime lending rate for financial institutions to increase by 0.50%, up to 3.20%, with potentially more increases to come this year.
Potential consequences of the rate hike
With more rate increases on the horizon, there are some important questions to ask yourself:
The chance of a potential recession in the future is also increasing. If that were to happen, we would expect to see the overnight rate decrease, thus decreasing the Prime rate, and lowering the interest payable on your variable rate mortgage again.
None of us foresaw COVID coming, and what it did to rates, a similar event in the near future could have the same effect. Will you regret locking in at what may be the peak of fixed rates if we start to see a decrease again to both variable and fixed rates?
Historically, statistics reveal that variable will come out on top. You may just have to endure some short term pain in 2022, for the longer term gain.
Still Feeling Unsure?
If you still have questions or concerns, please don’t hesitate to reach out!