That’s why we’re here to share key ways you can tackle high rates and protect your finances. But before diving in, let’s first understand how the Bank of Canada’s interest rate hikes actually impact mortgage rates.

How do the Bank of Canada interest hikes affect mortgage rates?

Eight times per year the Bank of Canada (BoC) announces its policy interest rate (also known as the overnight or target rate). This rate is the starting point Canadian financial institutions use to set their own interest rates for products like savings accounts, term deposits, loans, and mortgages.

As a result, when the BoC raises its policy rate, variable mortgage rates and new fixed mortgage rates increase as well, making the mortgage more expensive. Conversely, when the BoC decreases its rate, mortgage rates also drop, becoming more affordable.

4 ways to handle high mortgage rates

Unfortunately, as much as we wish otherwise, there’s no way to control rising interest rates. However, there are strategies you can use to reduce their effect on your finances.

1. Make extra fixed rate payments
    
   Still enjoying a pre-inflation low fixed rate? If you have some cash to spare, now is a good time to use it for extra mortgage payments. With your current low rate, more of that money will go towards paying off your mortgage balance rather than the interest – shaving years off your mortgage and saving you thousands in interest charges.
    
   There are several ways to do this. You could switch to accelerated bi-weekly payments, increase your regular payments, or make a single lumpsum payment. Whichever option you choose, even a small increase can make a huge difference to how fast you pay off your mortgage and how much interest you save over its lifetime.

2. Renew your fixed rate early
    
   As your mortgage renewal approaches, pay attention to the market. If another rate increase appears imminent, you may want to explore the possibility of renewing early with your advisor. While that would mean paying a higher rate in the near term, it will also help you avoid an even higher rate if another hike happens.

3. Consider switching to a variable rate
    
   This option might sound counterintuitive, particularly with the previous tip we shared. But, if your mortgage is coming up for renewal, you may also be able to save money by switching to a variable rate rather than locking into another fixed term.
    
   This is because variable rates are more flexible than fixed. If rates go down, your interest rate drops with them, saving you money. If rates go up, most variable mortgages let you convert to fixed. As a result, you have more power to capitalize on market conditions, while still keeping your risk low.
4. Adjust your mortgage terms
    
   With inflation and rate increases, it may be difficult to keep up with mortgage payments. If this is the case for you, make sure you reach out to your mortgage advisor. There may be ways to adjust your mortgage terms to help, such as changing your payment frequency or extending your amortization period.
    
   It’s important to bear in mind though that adjusting your mortgage terms will impact your repayment schedule, slowing down how fast you pay off your home. So it’s important to consider this option carefully before making any decisions.

As with everything in our finances, each person’s situation varies. A solution that works for someone else may not be the best option for you. So, if you’re concerned about how recent rate hikes may impact your mortgage or you’re already feeling the effects, don’t worry. Book a chat with one of our mortgage experts. Whether you have your mortgage with us or not, they’ll be happy to talk you through your options and the latest market conditions to figure out your best course of action.