Here are some expert takes on the Bank of Canada\u2019s rate decision<\/a><\/strong>\r\n <\/div>\n\u201cThe biggest surprise would be if they don\u2019t change the rate at all next week, given today\u2019s historically high inflation and the language in their previous announcement,\u201d said Laird in a statement. \u201cThe Bank told us the need for monetary stimulus is over. Even though the virus still exists, the economy is back to pre-pandemic levels.\u201d<\/p>\n
An increase of 25 or 50 basis points will likely not be enough to cool off the hot spring market or slow down prices, said Laird. Immigration will bring about increased buyer demand to a housing market that is experiencing supply shortages.<\/p>\n
Although borrowers with a fixed-rate mortgage will not be affected by rising rates until their next renewal date, Laird pointed out that variable-rate mortgage holders will feel the effect immediately.<\/p>\n
\u201cWhile no one will be surprised if the Bank raises the target for the overnight rate, Canadians who hold a variable-rate mortgage or a balance on a home equity line of credit (HELOC) will feel the rate increase right away,\u201d said Laird. \u201cTheir interest rate and mortgage payment will go up, and they should budget for further rate increases over the remainder of the year.\u201d<\/p>\n
According to Ratehub\u2019s mortgage payment calculator, a homeowner who placed a 10 per down payment on a $700,000 home with a five-year variable rate of 0.9 per cent amortized over 25 years would have a monthly mortgage payment of $2,418.<\/p>\n
Should the BoC make a 25-basis point rate increase next week, the variable rate would increase to 1.15 per cent, equal to a new monthly payment of $2,491, about $73 more per month. If rates increase by 50 basis points, their variable mortgage rate will increase to 1.4 per cent and their monthly payment will rise to $2,566, $148 extra per month.<\/p>\n
Rising interest rates could affect younger people the most<\/h3>\n
Younger Canadians were more likely to feel the effects of interest rate increases compared to those who were older.<\/p>\n
Forty-nine per cent of those aged 18 to 34 were the most likely to agree that rising interest rates could move them towards bankruptcy, slightly higher than those aged 35 to 54 (41 per cent). Canadians under 55 years old were also more likely to say that they are already beginning to feel the effects of interest rate increases.<\/p>\n
With a handful of rate hikes likely coming this year, 25 per cent of respondents said that they do not have a solid understanding of how interest rates impact their financial situation. Twenty per cent of those surveyed stated they are concerned about their ability to absorb an interest increase of one percentage, while two-thirds of respondents who describe their financial situation as \u201cpoor,\u201d say they are not prepared, up 12 points from September.<\/p>\n
\u201cIt\u2019s promising to see some Canadians are taking note of the chatter surrounding impending interest rate increases, and are adjusting their mindset accordingly,\u201d said Bazian. \u201cBut a lack of financial literacy impacts our findings as well because we know many Canadians don\u2019t understand how interest rate increases will affect their personal financial situation.\u201d<\/p>\n
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<\/a>Photo:\u00a0Rixie<\/a> \/ Adobe Stock<\/em><\/p>\n