The Bank of Canada has just released the latest inflation numbers. Here is what you need to know:
📊 Inflation Rate: The Consumer Price Index (CPI) indicates that the annual inflation rate for June 2023 stands at 3.4%. This is down from 4.4% in May. This is great news as we see inflation going in the right direction.
🔒 Monetary Policy: The Bank of Canada closely monitors inflation to guide its monetary policy decisions. Their target inflation rate is 2%. While we are getting closer to that target, we are still high, which means we cannot rule out another 0.25% hike in July. This is not something I agree with, because, ironically, the largest driver of this sticky inflation is interest rates!
(More to my point here: https://financialpost.com/investing/2-5-inflation-bank-of-canada-interest-rate-hikes-end)
Fixed rates are sitting between 5-5.69% for 3-5 year terms right now. There was an uptick due to the June Bank of Canada announcement. Hopefully with the inflation numbers coming down we see fixed rates settle down as well.
If you have a mortgage renewal coming up in the next 24 months, it is important to see what a higher rate would do to your payment. I don't suggest renewing any earlier than you have to, but starting to slowly increase your payments now allows you to have a lesser impact on your budget at renewal time.
Here is an example:
Your original mortgage was $ 250,000.00
Your current rate is 3.00% on your mortgage
Your original amortization was 25 years
Your monthly payment is $1183.11
You have 2 years until your renewal date
You owe $213,000.00 at renewal
At renewal, you have 20 years remaining and the rate is 5% (for example)
Based on this your new payment would be $1399.68/month
That is a difference of $216.57/month.
I would suggest adding $25/month to your payments every quarter over the next two years. That way you will not have a payment shock at renewal with the added benefit of paying your mortgage down faster.
Do you think you could factor that into your budget?
Click the link to my payment calculator. Feel free to enter your numbers and see what your payment difference would be.
As always, please reach out to my team anytime. Mary and Shanna are happy to help answer any questions you may have!
Renee and all of us at the Your Mortgage Needs Team!