- The Bank of Canada raised its benchmark interest rate by one percentage point on Wednesday, the largest hike in the nation in the past 24 years.
- Commercial banks and other financial institutions usually raise or lower mortgage rates in reaction to increases in interest rates by the Bank of Canada.
- The majority of goods and services are becoming more expensive as a result of inflation, issues with the supply chain, shortages, and rising prices.
The highest increase in the country in 24 years occurred on Wednesday when the Bank of Canada increased its benchmark interest rate by one percentage point.
The action suggests that the central bank may adopt a more aggressive stance in combating inflation, which is currently at a 39-year high of 7.7 percent and has increased the cost of groceries, vacations, and other goods.
Mortgages, loans, and spending patterns will all be impacted by the increase to 2.5 percent.
Mortgage rates are typically increased or decreased by commercial banks and other financial institutions in response to boosts in interest rates by the Bank of Canada.
According to Laurie Campbell, head of client financial wellness at advisory company Bromwich + Smith, those with variable mortgages will be impacted, and anyone whose mortgage rate is due for renewal will certainly experience “price shock.”
She predicted that many people would be forced to reconsider if they could still afford that home.
“The ten years preceding this had seen constant housing price hikes and the housing market spiraling out of control. With these interest rises, it will undoubtedly level off.”
She observed people using their home equity during the COVID-19 pandemic; therefore, some have both a 1st and 2nd mortgage on their homes. She worries that, in the event of a housing market drop, they may pay more for their houses than the homes themselves are worth.
Interest rate increases affect people with variable rate personal loans, auto loans, and lines of credit.
According to Campbell, “a lot more of their money will be going to interest,” so they should increase their payment to make up for it and ensure that they pay off the debt as soon as possible.
For some Canadians, that won’t be a simple task. According to research, Campbell added, Canadians have more debt than ever before, with an average debt of $1.86 for every dollar the nation earns.
Campbell added that people need to get serious and find out how to handle all of this debt.
She suggests getting assistance from a certified insolvency trustee if you cannot pay off your debt and your financial condition isn’t expected to improve.
Most goods and services are growing more expensive due to inflation, supply chain problems, shortages, and rising rates.
However, as limitations brought on by the pandemic loosen, people are ready to leave their houses once more, socialize, and engage in familiar pastimes.
Given that it is summer and people love to spend time outside, Campbell predicted that spending would continue shortly.
“I say it with care, though. Because inflation is hurting us and making it extremely difficult for us to make ends meet, I believe that we will witness rising debt levels and a day of reckoning where people will be pushed to cut back on their spending.”
Source: CTV News
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