Highly anticipated hikes to Ontario interest rates in March could rein in inflated housing prices for home buyers.
Real estate analysts are watching Bank of Canada (BoC) signals that Ontario interest rates are on the upswing. The federal agency left its 0.25% overnight lending rate intact in January, but could announce higher mortgage interest rates for Ontario consumers as early as March 2.
That’s potentially good news for motivated and first time home buyers. Property sellers forced to stay in the market during higher Ontario interest rates can look forward to fewer competitors. How much prices could dip is uncertain.
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Why Ontario Interest Rates Are Moving Up
With the pandemic poised to become “endemic” like the flu, the cost of Canadians’ monthly basket of goods and services (food, shelter, furniture, clothing, transportation, and recreation) is rising. COVID-related spikes in this so-called consumer price index (CPI) are driving federal determination to fight inflationary trends.
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High inflation rates are worrisome for modest income families and seniors or people with disabilities on fixed incomes, who can’t keep up with rising prices. The CPI was pushing a 30-year high of 4.8% in January. The BoC may soon be forced to act to drive the CPI back down to a 2% target, more in line with annual inflation rates that averaged 3% between 1914 and 2021.
Mercurial Housing Prices and Ontario Interest Rates
- Housing speculation is at record highs as Ontarians compete for a perpetually short supply of affordable housing. Curing inflation alone won’t fix “speculative fever”. Since 2000, housing prices have shot up six times faster than inflation rates.
- Ontario interest rates have averaged 5.8% since 1990, peaking at 16% in 1991.
- Mortgage interest rates in Ontario track the BoC’s benchmark overnight rate. That’s the rate the BoC sets for banks, credit unions, and trusts to follow in calculating prime Ontario interest rates.
- With most borrowers paying “prime plus” Ontario interest rates (lenders’ prime rate, plus 1% to 3% more), that could hurt.
Using a HELOC for an interest-only mortgage (Ontario).
- If the slated Ontario interest rates hikes unfold, housing prices may drop by up to 20% in some areas. That prediction comes from the federal Office of the Superintendent of Financial Institutions.
Market Advice for Ontario Interest Rates
Analysts advise Ontario homebuyers to stay ahead of Ontario interest rates by getting preapproved for a mortgage in February. Many banks, credit unions, and trust companies hold prequalified interest rate offers open for 60 to 120 days. Check preapproval documents for time limits.
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Even then, qualifying for a specific mortgage interest rate in Ontario is not a given. If your income or assets change, you may have to start over with your lender, or a mortgage broker. Switching employers can set you back by months. Mortgage lenders like financial stability. Expect to wait to pass your probationary period before your lender entertains your offer to purchase a new or resale home.
FAQs on Ontario Interest Rates
What is Canada’s Current Interest Rate?
Canada’s current interest rate for mortgage customers switching banks starts at 3.11% at BMO, 3.19% at RBC, and 3.06% at TD Canada Trust. The web rates are based on a closed five-year, fixed term mortgage with a 25-year amortization. Posted rates can be significantly higher than special offer rates. For instance, RBC’s posted rate for regular customers for the same term is 4.79%.
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What is Ontario’s Prime Rate?
Ontario’s prime rate is tied to the Jan. 26 BoC benchmark overnight rate of 0.25%. Prime rates were trending in early February at 2.45% at major banks BMO and RBC. Ratehub.ca reported private lender prime rates of 10% to 18% in December 2021.
Enticed by second mortgage interest rates? Read this first.
What is the Current TD Prime Rate?
The current TD prime rate was 2.45% in early February. Borrowers with the best credit histories score the lowest interest rates after factoring in the prime rate. Mortgages aren’t the only loan affected by the TD prime rate. Home equity lines of credit (HELOC), variable rate mortgages, vehicle or consumer loans, and other credit products are linked to the prime rate.
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