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For its final announcement of the year – on December 8th, 2021 – the Bank of Canada (BoC) maintained its target overnight interest rate at 0.25% with the expectation that a rate hike would occur in the second or third quarter of 2022, possibly in time for the spring real estate market. 


A rise in interest rates is generally associated with a strong economic outlook, but the current rate of inflation, supply-chain obstacles, labour shortages and the pervasive Omicron variant may be threatening the economy’s path to stability, leading some to speculate about the actual timing of rate hike predictions. 


Current environment 

Leading up to the holidays, Canadians found themselves faced, once again, with the challenges of reinstated restrictions and safety measures. Re-imposed capacity limits and forced closures due to record-high COVID=19 case counts continue to bring fear, fatigue and renewed economic uncertainty. 


As we ride out the current pandemic wave, the BoC will need to monitor signs of elevated debt levels and economic impacts before deciding when a rate hike will be warranted. 


Preparing for higher rates 

Despite the unknown variable of when, rates undoubtedly will rise at some point in 2022, and likely more than once, meaning the cost of borrowing is about to become more expensive. 

If you’re a homeowner locked into a fixed-rate mortgage, a higher interest rate won’t affect your payments for the term of your mortgage. When it’s time to renew, however, you may be doing so at a higher rate.


If you have a variable-rate mortgage, a rise in interest will mean higher monthly payments, and a larger portion of that payment will be allocated to interest rather than principal. Before an eventual rate hike, you may want to assess whether switching to a low, fixed-rate option now is a good idea. 


Depending on your current mortgage rate, regardless of type, you may want to consider refinancing to take advantage of low rates before they’re gone. Speak with your mortgage agent to determine the right course of action based on your unique situation. 


A low-rate environment also represents a good time to pay down as much debt as possible, starting with your high-interest obligations such as credit cards. At the same time, put as much money aside as you can in a savings account or TFSA to help offset the higher payments you’ll incur when rates go up. 


If you’re a would-be buyer looking to enter the market in the new year, consider getting pre-approved for a mortgage early on. This will allow you to lock into a lower rate for a period of 90 or 120 days so, even if rates rise during your pre-approval period, you’ll benefit from the lower rate when you secure the mortgage.


Canada’s central bank will deliver its first interest rate announcement of the new year on January 26th. And, while the status quo is expected in Q1, it’s important to be prepared for the inevitability of higher rates as the year progresses. That is, of course, unless COVID-19 has other plans for policymakers. 


Have questions about taking advantage of the current low-rate environment? Answers are a call or email away!