Central Bank Interest Rate Hikes in Canada impact on Fixed/Variable Rates

Question

Note: This is my first property purchase so forgive the n00b question

I plan to sign at the notary for the purchase of a condo in the upcoming months. The condo was under construction for the past year and is expected to be built early 2023. According the mortgage advisor, I can only sign at the notary and lock in rates 90 days prior to the property being built (i.e. November).

I gave my downpayment 1 year ago and evidently, rates weren't as bad as today but I couldn't lock them in. Now bonds are worse, central gov increased rates so Fixed + Variable Rates have increased considerably.

Question: I want to anticipate the impact of Central Bank Rates on the Rate I would expect to get by Banks. E.g. Tomorrow Central Bank raises rates by 0.75%. What would be the impact on Variable + Fixed rates. For the sake of simplicity, let's use any big bank (RBC, TD). Is the impact immediate? Is it a 1:1 impact where 0.75% increase = 0.75% increase for RBC.

Extra Is it really true that I can only lock in interest rates 3 months prior as mentioned above?

Answer 1

Here's how it looks from the bank's point of view:

Hi, I would like to borrow some money from you, and pay you interest. I don't want the money now, and actually I might not sign in the end so you can't be completely sure I will borrow it or ever pay you that interest. I want you to give me today's interest rate and stick with that when I actually borrow it, even if all the rates have gone up and you could make more by lending that money to someone other than me. OK?

And oddly, the bank says "ok" though not for an indefinite amount of time. They let you lock a rate. Is it always 90 days? No. One of my children is house-shopping and was given a rate that will be locked for 120 days (they must close the deal by November.) It is a very good plan to lock a rate now (6 months ago would have been better -- my other child locked in a 3% fixed in February -- but not possible for you) and today is better than tomorrow.

As for what a central rate bump does, while the variable rates are defined as "prime plus something" and therefore go up and down with the central rate, the fixed are more complicated and include some tweaks for the bank's guess of trends. It's not like they'll quote you 5.25 today and then 6.00 after it goes up by .75. That 5.25 includes the knowledge the central rate is going up. That's why it's higher than the variable rate at the moment. Still, you want to lock in as soon as you can. If you have to wait because of when your close will be, it's worth seeing if another bank will lock in for longer (or if the one you're talking to will do so.)

As a side note, getting real estate and legal advice from a notary is unusual. A notary witnesses you signing things. Lawyers, real estate agents, and financial advisors are more usual sources of the sort of information you're looking for.