Examining past rate-hike cycles in Canadian history can provide us with some statistical insights regarding mortgage rates. Here are a few relevant statistics based on historical data:
- Historical mortgage rate increases: During previous rate-hike cycles, mortgage rates in Canada have increased by various magnitudes.
a) Rate-Hike Cycle: 2004 to 2007
i) Starting Point: In July 2004, the Bank of Canada's target overnight interest rate was 2.00%.
ii) Ending Point: By July 2007, the target overnight rate had reached 4.50%.
iii) Mortgage Rate Increase: Mortgage rates increased in response to the rate hikes during this period. The average five-year fixed mortgage rate rose from around 5.99% in July 2004 to approximately 7.39% in July 2007.
iv) Percentage Increase: Over this three-year period, mortgage rates increased by approximately 1.40%.
b) Rate-Hike Cycle: 2010 to 2011
i) Starting Point: In June 2010, the Bank of Canada's target overnight interest rate was 0.50%.
ii) Ending Point: By July 2011, the target overnight rate had risen to 1.00%.
iii) Mortgage Rate Increase: Mortgage rates also increased during this period, but the magnitude of the increase was relatively smaller compared to the 2004-2007 cycle. The average five-year fixed mortgage rate rose from approximately 5.19% in June 2010 to around 5.69% in July 2011.
iv) Percentage Increase: Over this one-year period, mortgage rates increased by approximately 0.50%.
c) Rate-Hike Cycle: 2017 to 2018
i) Starting Point: In July 2017, the Bank of Canada's target overnight interest rate was 0.75%.
ii) Ending Point: By July 2018, the target overnight rate had reached 1.50%.
iii) Mortgage Rate Increase: Mortgage rates increased in response to the rate hikes during this period, although the increase was again relatively moderate. The average five-year fixed mortgage rate rose from approximately 2.79% in July 2017 to around 3.29% in July 2018.
iv) Percentage Increase: Over this one-year period, mortgage rates increased by approximately 0.50%.
Please note that these statistics represent average mortgage rate increases during the specified time periods. Actual mortgage rates offered by lenders can vary based on individual circumstances, lender policies, and other factors.
- Typical rate hike increments: The Bank of Canada generally implements rate hikes in quarter-point increments (25 basis points). However, in some instances, larger rate adjustments have been made, particularly during periods of rapid economic growth or inflation concerns.
- Impact on variable-rate mortgages: Variable-rate mortgages are directly affected by changes in the overnight interest rate set by the Bank of Canada. On average, these mortgages tend to increase by an amount equivalent to the rate hike. For example, if the central bank raises rates by 0.25%, variable-rate mortgages may also see a similar increase.
- Impact on fixed-rate mortgages: Fixed-rate mortgages, which provide borrowers with a set interest rate for a specific term, are not directly influenced by rate hikes during the term. However, when renewing a fixed-rate mortgage, borrowers may face higher rates if market rates have risen since their initial mortgage was obtained.
- Historical mortgage rate spreads: The spread between the prime lending rate (the rate offered by financial institutions to their most creditworthy customers) and the Bank of Canada's overnight interest rate can fluctuate during rate-hike cycles. The spread typically increases as the central bank raises rates, reflecting lenders' adjustments to their borrowing costs.
- Regional variations: Mortgage rates can vary across different regions in Canada. Factors such as local housing market conditions, economic performance, and regional lending practices can influence the extent of mortgage rate increases during rate-hike cycles. Therefore, it's essential to consider regional dynamics when assessing the impact on mortgage rates.
It's worth noting that the specific statistics and data related to past rate-hike cycles can vary depending on the time period analyzed and the source of information. Consulting reputable sources, such as the Bank of Canada, mortgage lenders, or economic research institutions, can provide more precise and up-to-date statistical insights.