The Bank of Canada governor, Tiff Macklem, recently stated annual inflation rates are forecasted to increase...

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The Bank of Canada governor, Tiff Macklem, recently stated annual inflation rates are forecasted to increase to nearly five per cent by the end of the year, before coming back to its two per cent target by the end of 2022. This has led many Canadians to seek mortgage pre-approvals and rate holds before low interest rates increase. These changes will impact homebuyers with fixed and variable mortgage rates differently. With a fixed rate mortgage, the mortgage rate and payment is constant for the term of the mortgage. On the other hand, under a variable rate mortgage, the rate will change with the prime lending rate. For example, CIBC currently sets a fixed 5-year term mortgage rate of 2.79% and a variable 5-year term mortgage rate of 1.65% + prime. The current prime rate is 2.45%. If a homebuyer selects the variable option and the prime rate stays at around 3% per year for 5 years, what effective monthly interest rate will they be paying? a) 0.14% b) 0.23% c) 0.34% d) 0.38% The Bank of Canada governor, Tiff Macklem, recently stated annual inflation rates are forecasted to increase to nearly five per cent by the end of the year, before coming back to its two per cent target by the end of 2022. This has led many Canadians to seek mortgage pre-approvals and rate holds before low interest rates increase. These changes will impact homebuyers with fixed and variable mortgage rates differently. With a fixed rate mortgage, the mortgage rate and payment is constant for the term of the mortgage. On the other hand, under a variable rate mortgage, the rate will change with the prime lending rate. For example, CIBC currently sets a fixed 5-year term mortgage rate of 2.79% and a variable 5-year term mortgage rate of 1.65% + prime. The current prime rate is 2.45%. If a homebuyer selects the variable option and the prime rate stays at around 3% per year for 5 years, what effective monthly interest rate will they be paying? a) 0.14% b) 0.23% c) 0.34% d) 0.38%

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