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Interest rate hike affects variable rate mortgages

The Bank of Canada raised its key interest rate to 0.75 percent, up one-quarter of a percentage point from 0.50 percent — the first increase in seven years — initially affecting variable-rate mortgages and lines of credit.

In responding to the hike, Ryan McKinley, a senior mortgage development manager at Vancouver City Savings Credit Union (470,000 members, $21 billion in assets), told The Canadian Press that homeowners with a variable-rate mortgage could consider signing on to a fixed rate. Homeowners with little time left on a five-year fixed mortgage might consider locking in another five years, even though this might incur penalties.

Canada Mortgage and Housing Corp. (CMHC) expressed concerns this past June about the national housing market. The federal housing agency reported that the average scheduled monthly payment is growing faster than in ation, suggesting that homeowners could struggle going forward. The average scheduled monthly mortgage payment for new loans climbed to $1,328 in the fourth quarter of 2016, up 4.6 per cent from $1,269 a year ago. The increase came as house prices continued to rise, particularly in the cities of Toronto and Vancouver and surrounding areas. ◊