Get Ready for Higher Interest Rates

By Irma Sebastiano July 03 2018 Comments

According to some analysts, the Bank of Canada will likely raise interest rates when it meets on July 11th. If it does, this will mark the fourth hike in a 12 month period. For Canadian consumers, this will mean that holding onto debt will become more expensive; consumption will likely slow down and delinquency could inch higher.

For the last ten years or so, Canadians have enjoyed extremely low levels of interest and the economy is relatively strong, so even if another hike occurs on July 11th, it is forecasted that Canada should be able to weather the storm.

Some are saying that the timing for another interest rate hike is poor. After all, we are currently facing trade uncertainty with the U.S and housing prices in larger centres like Vancouver and Toronto have been steadily falling in recent months.
Governor Stephen Poloz of the Bank of Canada however, has repeatedly stated that they cannot base interest rate decisions on hypothetical scenarios – and since there is no way to know when the trade uncertainty with the US will end, that factor cannot play a role in the decision. As far as housing prices, the drops are most likely due to changes in mortgage rules introduced earlier this year. While a rate increase certainly won’t help housing prices, it probably won’t hurt that much either.

What does this mean for Canadian consumers?

It is no secret that Canadian households certainly have their fair share of debt. The economy however is quite strong with good growth trends and low unemployment, so even with high household debt, the country should be able to absorb another hike.
Also, recent history shows that when the Bank of Canada raised its rates debt-to-income ratio declined. Canadians took out less credit and paid off more of their existing debt.

What does this mean for Canadian mortgage holders?

If you currently hold a fixed rate mortgage, an interest rate hike from the Bank of Canada will not affect your monthly payments until it is time to renew your mortgage, at which point there is a good chance that you will have to renew at a higher rate.

For those holding variable rate mortgages, they will see an increase almost immediately however it is still likely to be less than the going fixed rate.

If you have any questions about your mortgage or are thinking about mortgage options such as refinancing or second mortgages, you would do will to speak to your mortgage advisor sooner rather than later. You may still be able to get ahead of the curve and lock in a rate for yourself before interest rates go up.
If you have any concerns about how a potential rate hike could affect you, call me today. I would be happy to discuss your options with you. 
 

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4725 Dorchester Road, Unit B4, ON. L2E 0A8 irmasebastiano@rmabroker.ca 1 - (905) 321-9396
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